MicroeconomicsElasticities

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Elasticities

How sensitive is a buyer to a change in price?

How sensitive is a buyer when another product changes price?How sensitive is a buyer to changes in their own income?How sensitive is a supplier to a change in price?2

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Price Elasticity of Demand (PED)

P rice e las tic ity o f d em an d =P ercen tag e ch an g e in q u an tity d em an d ed

P ercen tag e ch an g e in p rice

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Definition:A measure of the responsiveness of the demand for a product to changes in its own price.

Range of PED values5

Price Inelastic Demand6

Price Elastic Demand7

Range of PED8

Extreme Cases9

Perfectly Elastic Demand10

Perfectly Inelastic Demand11

Unit Elastic Demand12

D e te rm in a n ts o f P E D

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Determinants of PEDIncome

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Determinants of PEDSubstitutes

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Determinants of PEDSubstitutes

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Cross-Elasticity of Demand (XED)17

XED = Percentage Change in Quantity Demanded for X Percentage Change in Price of

Y

Definition:The cross elasticity is a measure of the responsiveness of the demand for one product to changes in the price of another product.

Range of XED values18

Income Elasticity of Demand (YED)19

YED = Percentage Change in Quantity Demanded Percentage Change in

Income

Definition:The income elasticity of demand is a measure of the responsiveness of the quantity demanded to changes in real income.

Types of Goods and YED20

Price Elasticity of Supply21

PES = Percentage Change in Quantity Supplied Percentage Change in Price

Definition:The responsiveness of the quantity of a good supplied to changes in its price.

Determinants of PESTime

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Determinants of PESSpare Capacity

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