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Elasticity of demand - Coggle Diagram
Elasticity of demand
Price Elasticity of Demand
Definition: How much the quantity demanded responds to a change in the product price
Determinants of price elasticity of demand
Luxury/necessity
Number of substitutes
Share in the budget
Time available to make the purchase
Classifications
Ed<1: demand is inelastic, P increase-> TR increases
Ed>1: demand is elastic, P decrease-> TR increases
Ed=1: demand is unit elastic, P changes-> TR remains constant( TR max)
Two extreme cases of Ed
D curve: vertical; perfectly inelastic
D curve: horizontal; perfectly elastic
Income elasticity of demand
Ei<0 ( negative): inferior goods
Ei>0( positive): normal goods
0<Ei<1: necessity
Ei>1: luxury
Cross-price elasticity of demand
Ex,y>0: the goods are substitutes
Ex,y<0: the goods are complements