| What is the Price Elasticity Demand? [PED]
-Give the Formula | -How well Quantity Demand responds to a Change in Price
PED = % Change in Quantity Demanded [Qd] / % Change in Price [P]
PED = % Change of Qd / % Change of P |
| Toy Cars Price has Increased from 50 to 70p leading to a Demand Reduction from 15 to 10 Cars. What is the PED? | -First, find the % Change in Qd: [15:100& —> 10:67%]
-Therefore %Change in Qd is -33% [Negative as its Dropped]
-Now % Change in P [50:100% —> 20:40%]
-Therefore %Change in P is 40%
-Therefore the PED is -33%/40% = -0.83 |
| What does the PED mean if it is Greater than 1 or Lower than -1
PED > 1 OR PED < -1 | -This means the Demand is Elastic. Elastic Demand means that a Change in Price leads to Larger Change in Quantity Demanded. Gets more Extreme as the PED gets Larger or Smaller
-On a Diagram, it wouldn’t look Steep which shows off how little Price Changes cause Greater Quantity Demanded Changes |
| What is Perfectly Elastic Demand? | -This is when the PED is + or - Infinity
-This means that any Price Increase leads to a Demand Blackout - it Falls to 0.
-Therefore it is Illustrated as a Horizontal Line in a Diagram.
-It has only 1 Fixed Price where Consumers are Happy with. |
| What does the PED mean when it is Between -1 and 1
-1 < PED < 1 [Can’t be Equal] | -This means the Demand is Inelastic. Any Change to Price leads to Smaller Change in Quantity Demanded. This gets more Extreme as the PED approaches 0
-On a Diagram, it would look Fairly Steep, Showing off the Fact that changing the Price does Little Effect to Quantity Demanded when compared to the Price Change in % |
| What is Perfectly Inelastic Demand? | -This is when the PED is 0.
-Any Change in Price will have No Effect on the Quantity Demanded. This is Illustrated as a Vertical Line |
| What is Unit Elasticity? | -This is when the PED is + or - 1
-This means the % Change in Qd is the SAME as % Change in Price. |
| What is Income Elasticity of Demand [YED]
-Give the Formula | -Shows how well the Demand Responds to Changes in Real Income
YED = % Quantity Demanded [Qd] of a Good / % Change in Real Income [Y]
YED = % in Qd / % in Y |
| The Toy Car Company has seen an Increase from 4 to 10 Cars after an Increase of Real Income from 18K to 23K. Calculate the YED | -First the % in Qd [4:100% —> 10: 250%]
Therefore % in Qd is 150%
-Now % in Y [18:100% —> 23: 127.78%]
Therefore % in Y is 27.78%
Therefore YED i 5.4 |
| What is Income Elasticity? | -This is when YED is Greater than 1
-This means that Every Single % Increase in Income [Or Cuts] leads to Greater % in Demand
-In an Income [Y Axis] Quantity Demanded [X Axis] Graph, It wouldn’t look Steep |
| What is Income Inelasticity? | -This is when YED is Less than 1
-This means that Every Single % Change in Income leads to Less % change in Demand
-In an Income, Quantity Demanded Diagram, it would look Steep |
| What is a Perfectly Inelastic Income? | -This is when the YED = 0
-This means that any Change to Income leads to no Change in the Quantity Demanded |
| What is Cross Elasticity of Demand [XED]
-Give the Formula | -Shows how Quantity Demanded for Good X responds via a Change in Price for Good Y
XED = % Change in Quantity Demanded [Qd] for Good X / % Change in Price [P] of Good Y
XED = % Change in Qd of Good X / % Change in P of Good Y |
| What happens if the XED is:
1. Positive
2. Negative | 1. Positive simply makes Good X and Y Substitutes to each other. As XED gets Larger, this makes Good X get more Extreme % in Qd as % Change in Price for Good Y
2. Negative makes Good X and Y Complementary Goods. As XED gets more Negative, Good X gets more Affected in % in Gd as % Change in Price for Good Y |
