This is a draft cheat sheet. It is a work in progress and is not finished yet.
Elasticity
a measure of the responsiveness of one economic variable following a change in another variable. |
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PED = |
% change in quantity demanded/ % change in price |
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% Change = |
New Value - Old Value / Old Value x 100 |
Interpreting Elasticities
PED = 0 Perfectly Elastic. |
- demand stays constant regardless of changes in the price (theoretically not real). |
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PED = 1 Unitary Elastic. |
- change of 1 % in price leads to a 1% change in the quantity demanded. |
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PED < 1 Demand is Inelastic. |
- consumers are insensitive to changes in the price and their purchasing behaviour does not change when prices rise. |
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PED > 1 Demand is Price Elastic. |
- consumers are very sensitive to changes in price and 1% increase in price causes a drop in the quantity demanded of more than 1%. |
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If PED = ∞ Perfectly Price Elastic. |
- any price change will lead the demand to fall to Zero and price reductions will not boost sales. |
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Curve of Elasticities of Demand
Determinants of Price Elasticity of Demand
1. Necessities vs. Luxuries |
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