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Price Elasticity of Demand, Income Elasticity of Demand - Coggle Diagram
Price Elasticity of Demand
PED = % change in quantity demanded / % change in price
Factors influencing PED
Range and attractiveness of subtitutes. As aggregate products are put into groupings, demand will start to become more price inelastic.
Lots of substitute means that there is more products that could substitute that product.
More substitute results in elastic demand
Products that are from a different group of products is not substitutes
Things to consider about substitutability
Quality and accessibility of information that consumers have about products that are available to satisfy wants and needs
The degree to which people consider it as a necessity
Brand image of the product
Addictive properties of the product
Key values
Perfectly inelastic
Where a change in. price has no affect on the quantity demanded
PED must be 0
Inelastic
When PED < 1, it's inelastic
The change in demand is less relative to the change in price
Unitary Elastic
PED = 1
The change in price is the same as change in quantity demanded
Elastic
PED > 1
The change in demand is much more relative to the change in price
Perfectly elastic
PED = infinite
When all that is supplied is sold at a given price
Shows how responsive demand is to a change in price.
Income Elasticity of Demand
Shows how responsive quantity demanded is following a change in income
YED = % change in quantity demanded / % change in real income
If income increases
increase in quantity demanded
Positive relationship
The product is then considered a normal product
YED = positive value
Inferior Goods
YED = negative value
Goods which demands goes down as income increases
Negative relationship