6-Elasticity Notes

Front

What does Price Elasticity of Demand (PED) measure?

Back

PED measures how much quantity demanded responds to a change in price.

Front

What is the condition for Elastic Demand in terms of PED?

Back

PED > 1 → Elastic Demand (Quantity demanded is very responsive to price changes).

Front

What is the condition for Inelastic Demand in terms of PED?

Back

PED < 1 → Inelastic Demand (Quantity demanded changes little when price changes).

Front

What is the condition for Unitary Elastic Demand in terms of PED?

Back

PED = 1 → Unitary Elastic (Proportional response).

Front

What is the condition for Perfectly Inelastic Demand in terms of PED?

Back

PED = 0 → Perfectly Inelastic (Demand does not change at all).

Front

What is the condition for Perfectly Elastic Demand in terms of PED?

Back

PED = ∞ → Perfectly Elastic (Even a small price change drops demand to zero).

Front

Give examples of Elastic Goods.

Back

Luxury cars, electronics, restaurant meals.

Front

Give examples of Inelastic Goods.

Back

Gasoline, medicine, salt.

Front

What are the determinants of Price Elasticity of Demand?

Back

1. Availability of Substitutes 2. Necessity vs. Luxury 3. Proportion of Income Spent 4. Time Horizon 5. Addictive Goods.

Front

How does the availability of substitutes affect demand elasticity?

Back

More substitutes → More elastic demand; No substitutes → Inelastic demand.