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PRICE ELASTICITY - Coggle Diagram
PRICE ELASTICITY
Price Elasticity of Demand (PED)
Responsiveness of Qd to price
PED = %ΔQd ÷ %ΔP
Elastic >1
Inelastic <1
Unitary =1
Applications
Business pricing
Government taxes
Predict consumer behaviour
Factors affecting PED
Substitutes → more = elastic
Necessities → inelastic
Income proportion → high = elastic
Time → longer = elastic
Cross Elasticity of Demand (XED)
XED = %ΔQd(A) ÷ %ΔP(B)
Positive → substitutes
Negative → complements
Price Elasticity of Supply (PES)
Responsiveness of Qs to price
PES = %ΔQs ÷ %ΔP
Time = key factor
Total Revenue Test
TR = P × Q
Price ↑, TR ↓ → Elastic
Price ↑, TR ↑ → Inelastic
Price ↑, TR same → Unitary
Income Elasticity of Demand (YED)
YED = %ΔQd ÷ %ΔIncome
Positive → normal goods
Negative → inferior goods