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MicroeconomicsElasticities
1
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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