elasticity
what is PED
it measures the responsiveness of demand to a change in price
what is the equation for PED
% change in quantity / % change in price
if the PED is greater than one it is
elastic
if the PED is less than one it is
inelastic
if the PED is one it is
unitary
why does elasticity differ
consumer knowledge, time, disposable income, number of substitute goods
how would the demand curve look for elastic demand
flatter
how would the demand curve look for inelastic demand
steeper
how does PED impact revenue if its elastic
price increases and revenue decreases or price decreases and revenue increases
how does PED impact revenue if its inelastic
price increases and revenue increases or price decreases and revenue decreases
what does YED stand for
income elasticity of demand
what is YED
it measures the responsiveness of demand to a change in income
what is the formula for YED
% change in QD / % change in income
what does the figure mean if it is 0-1
normal good
what does the figure mean if it is greater than one
luxury good
what does the figure mean if it is less than one
inferior good
what is cross elasticity of demand
it measures the responsiveness of demand for one good in relation to a change in the price of another good
what is the formula for XED
% change in good A / % change in price of good B
what does it mean if the XED is positive
substitute good
what does it mean if the XED is negative
complimentary good
what does it mean if the XED is zero
no relationship
what does PES stand for
elasticity of supply
what does PES mean
it measures the responsiveness of supply to a change in price
what is the equation for PES
% change in quantity supplied / % change in price
what does it mean if the PES is more than one
elastic
what does it mean if the PES is less than one
inelastic
what does it mean if the PES is one
unitary
name four factors that impact the elasticity or inelasticity of suppl
space capacity, availability of raw materials, ease of switching production, time taken to convert raw materials to final goods
when is a market in equilibrium
when demand is equal to supply
what is marekt equilibrium
all the products that are presented to a market are sold and the marke tis cleared
when does market disequalibrium occur
when there is excess demand or supply
when does excess supply occur
when the market price is set above the equalibrium price
what will happen to supply if there is excess supply
supply will extend because of the higher proift incentive
what will happen to demand if there is excess supply
demand will contract due to consumers not being able to afford the price
when does excess demand occur
when the market price is set below the equalibrium price
what will happen to supply when there is excess demand
supply will contract as suppliers dont see a profit incentive
what will happen to demand when there is excess demand
demand will extend becasue consumers can afford the goods and services