- price elasticity of demand
- income elasticity of demand
- cross elasticity of demand
Price elasticity of demand(PED) is the responsiveness to the quantity demanded due to a change in the price of the product.The formula is the change in demand in percentage / the change in price in percentage.
PED >1, it is elastic, which means that an increase in price will result in a reduction in demand.
PED <1,it>
PED = 0, This means that demand does not change at all when the price changes and the demand curve will be vertical .
PED = 1, infinity, an change in price will have the exactly proportional change in demand and the demand curve will be horizontal.
There are four main determinants for the PED for products.
- the closeness of subsitutes
If the the number of subsitutes increases, the more closeness to the product, and the product is likely to become price elastic.
- the expense proportional of the income
If the expense of the product only take a small proportion of the person`s income, even the price increases, there will not be much change in the number of quantity consumpted.
- Time
There is a time lag between the price increase and the reponds of the consumer. which means if the price increases, in the short time consumer are likely to purchases it despite the increase in price.Over time, consumers find out more possible subsitute, the products are more pice elastic.
- level of neccessity.
If some people think the goods or services are neccessary for them, then the products tends to be price inelastic.(tobacoo, fuel)
- peak and off-peak time
The demand tend to be price inelastic at the peak time and inelastic at the off-peak time.
Income elasticity of demand, the responsiveness to the quantity demanded when there is a change in income.YED = change in demand in percentage / change in income in percentage.
YED > 0 it is an normal goods which will increases in demand as income rise
YED <0,>Cross elasticity of demand, the respondsiveness to the demand of one product when there is a change in price of another product. XED = change in demand of product in percentage / change in price of another product.
XED > 0, the goods are substitute.(competing goods)
XED <0,the>
PED= 0 , perfectly inelastic. any changes in price, will not have any effect on demands.
ReplyDeletePED < 1, inelastic, an rise in prices will not have much effect on demands.
YED < 1, inferior goods, an decreases in demand while an increase in income
XED < 1, complement goods.
I dun know why i cannot edit my post, i had tried more than 5 times>.<, so i edit the error here.