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1.2, PED AND REVENUE, If PED is elastic and price rises= REVENUE FALLS.,…
1.2
Factors affecting PED (PANT)
Proportion of income
- the higher the proportion of income the more elastic they will be.
Availability of other substitutes
- the more substitutes that are available the more elastic consumers will be.
Necessity or luxury
- If it is a necessity consumers will be more price inelastic.
Time
- in the short term it is harder to find substitutes
YED Income elasticity of demand.
Measures the responsiveness of quantity demanded to a change in income.
% change in income/ % change in quantity demanded.
XED- Cross price elasticity
% change in QD of good A/ % change in QD of good B.
COMPLEMENTS HAVE NEGATIVE XED (if the price of good A goes up the QD of good b goes down.
SUBSTITUTES HAVE POSITIVE XED (if price goes up on good A QD of good b increases).
Composite demand is when a product can be demanded for more than one reason.
PED AND REVENUE
If PED is elastic and price rises= REVENUE FALLS.
if PED is elastic and price falls= REVENUE INCREASES
If PED is inelastic and price rises= REVENUE INCREASES
If PED is inelastic and price decreases= REVENUE FALLS.
RANGE OF VALUES YED
Negative value- (inferior good) - as income increases qd goes down.
Positive value= income increases and demand increases.
Between 0 and 1 it is necessity.
Greater than 1 = luxury
