AIS S1 U03 L01 Price Income and Cross Elasticity.pptx - AIS S1 U03 L01 Price Income and Cross Elasticity Read Oct 5 2016 Question-Name 3 necessities and

AIS S1 U03 L01 Price Income and Cross Elasticity.pptx - AIS...

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AIS S1 U03 L01 Price, Income and Cross Elasticity Read Pages 46 – 62 Oct 5, 2016 Question-Name 3 necessities and 3 luxuries that you would buy.
Elasticity – the concept When price rises, what happens to demand? Demand falls BUT! How much does demand fall?
Elasticity – the concept If price rises by 10% - what happens to demand? We know demand will fall By more than 10%? By less than 10%? Elasticity measures the extent to which demand will change
Elasticity 4 Basic Types Used: Price elasticity of demand Price elasticity of supply Income elasticity of demand Cross elasticity
Price Elasticity of Demand
Elasticity Price Elasticity of Demand The responsiveness of demand to changes in price Where % change in demand is greater than % change in price – elastic Where % change in demand is less than % change in price - inelastic
Elasticity The Formula: Ped = % Change in Quantity Demanded ___________________________ % Change in Price If answer is between 0 and -1: the relationship is inelastic If the answer is between -1 and infinity: the relationship is elastic Note: PED has – sign in front of it; because as price rises demand falls and vice-versa (inverse relationship between price and demand) WE ignore the minus sign

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