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ELASTICITY AND ITS APPLICATIONS - Coggle Diagram
ELASTICITY AND ITS APPLICATIONS
Price Elasticity of Supply (PES)
PES =%change in quantity supplied divided by %change in price
If % change in quantity supplied > % change in price = elastic
Ease with which produces can respond to price changes
The responsiveness of the quantity supplied to a change in the price of a product
If % change in quantity supplied < % change in price = inelastic
Cross Price Elasticity of Demand (XED)
Relationship between changes in the price of one good and the demand for another related good
Substitutes (Positive relationship)
Complements (Negative relationship)
XED = % change in the quantity demanded of good A divide by % change in the price of good B
A measure of how much buyers and sellers respond to changes in market conditions
Determinants of Elasticity
Time period
Luxury or Necessity
Proportion of Income
Number of Substitutes
Addictive Nature of Good
Income Elasticity of Demand (YED)
The responsiveness of quantity demanded to a change in income
Normal goods
Positive Relationship
Demand rises as income rises
Inferior goods
Inverse relationship
Demand falls as income rises
YED = % change in quantity demanded divided by % change in income