2. Elasticities How sensitive is a buyer to a change in price? How sensitive is a buyer when another product changes price? How sensitive is a buyer to changes in their own income? How sensitive is a supplier to a change in price? 2
17. Cross-Elasticity of Demand (XED) 17 Definition: The cross elasticity is a measure of the responsiveness of the demand for one product to changes in the price of another product. XED = Percentage Change in Quantity Demanded for X Percentage Change in Price of Y
19. Income Elasticity of Demand (YED) 19 Definition: The income elasticity of demand is a measure of the responsiveness of the quantity demanded to changes in real income. YED = Percentage Change in Quantity Demanded Percentage Change in Income
21. Price Elasticity of Supply 21 Definition: The responsiveness of the quantity of a good supplied to changes in its price. PES = Percentage Change in Quantity Supplied Percentage Change in Price
Elasticity is a way of measuring the sensitivity of a variable to a change in price and non-price determinants.
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PED: How sensitive is a buyer to a change in price?XED: How sensitive is a buyer when another product changes price?YED: How sensitive is a buyer to changes in their own income?PES: How sensitive is a supplier to a change in price?
Perfectly Elastic: At a certain price the demand is infinite but not at any other price.Perfectly Inelastic: A change in price has no impact on the quantity demanded
The Existence of Substitutes: The more substitutes that exist for a good, the more responsive consumers will be to a change in its price.The Percentage of a Person’s Total Budget Devoted to the Purchase of that Good: The larger the percentage of your budget devoted to an item, the more price elastic will its demand be.The Time Allowed for Adjustment: The longer the time allowed for adjustment to a price change, the more that consumers will react. The longer any price change persists, the greater the elasticity of demand, other things held constant.
