Elasticity
Cross Elasticity of Demand
% Change in Qty of A/ % Demand in Price of B
Complements
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Direct Tax
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Elastic Supply
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Engel Curve
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Inferior Goods
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Tax
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Perfectly Inelastic Demand (3 reasons)
1 The number and closeness of substitutes 2 The necessity of the product and how widely the product is defined 3 The time period considered
Perfectly Inelastic Demand (definition)
When a product is completely unresponsive to price changes.
Necessity Goods
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Perfectly Inelastic Demand
The PED = 0
Cross Elasticity of Demand (definition)
Cross elasticity of demand is a measure of how much the demand for a product changes when there is a change in the price of another product.
Unit Elastic Demand
The PED = 1
Price Elasticity of Demand
% Change in the Quantity Demanded of the Product/ % Change in Price of the Product
Inelastic Supply
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Normal Goods
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Price Elasticity of Supply
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Substitutes
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Unit Elastic Demand (definition)
Elasticity of demand when a change in the price of the product leads to a proportionate, opposite, change in the quantity demanded of it. This means that if the price is raised by a certain percentage, then the quantity demanded will fall by the same percentage, and so the PED equals to 1 and the total revenue gained by the firm will not change.
Elastic Demand (definition)
Elasticity of demand when a product has less demand, then a change in the price of the product leads to a greater than proportionate change in the quantity demanded of it. This means that if the price is raised, the quantity demanded will fall by more in comparison, and so the total revenue gained by the firm will fall.
Inelastic Demand (definition)
Elasticity of demand where change in the price of the product leads to a proportionally smaller change in the quantity demanded.
Elastic Demand
PED is greater than 1 and less than infinity. Infinity < 1
Inelastic Demand
PED is less than 1 but greater than 0 ( 1<0 )
Perfectly Elastic Demand
The PED = Infinite
Perfectly Elastic Demand (definition)
When the demand curve goes on forever therefore the quantity demanded is infinite, however if the price is raised by the smallest amount, demand will fall to zero, an infinite change.
Price Elasticity of Demand (definition)
a measure of how much the quantity demanded of a product changes when there is a change in the price of the product.
