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    IBDP Economic HL Chapter 4 Notes

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    Aditya Rathi
    This document summarizes different types of elasticities: 1) Price Elasticity of Demand (PED) measures how quantity demanded responds to price changes and depends on availability of substitutes, necessity of goods, and time period. 2) Cross Elasticity of Demand (XED) measures how quantity demanded of one good responds to price changes in another and indicates if goods are substitutes or complements. 3) Income Elasticity of Demand (YED) measures how quantity demanded responds to changes in income and indicates if goods are necessities, superior, or inferior. Price Elasticity of Supply (PES) also measures how quantity supplied responds to price changes and depends on production time, costs

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    IBDP Economic HL Chapter 4 Notes

    Uploaded by

    Aditya Rathi
    97 views3 pages
    This document summarizes different types of elasticities: 1) Price Elasticity of Demand (PED) measures how quantity demanded responds to price changes and depends on availability of substitutes, necessity of goods, and time period. 2) Cross Elasticity of Demand (XED) measures how quantity demanded of one good responds to price changes in another and indicates if goods are substitutes or complements. 3) Income Elasticity of Demand (YED) measures how quantity demanded responds to changes in income and indicates if goods are necessities, superior, or inferior. Price Elasticity of Supply (PES) also measures how quantity supplied responds to price changes and depends on production time, costs

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    IBDP Economic HL Chapter 4 Notes

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    IBDP Economic HL Chapter 4 Notes

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    This document summarizes different types of elasticities: 1) Price Elasticity of Demand (PED) measures how quantity demanded responds to price changes and depends on availability of substitutes, necessity of goods, and time period. 2) Cross Elasticity of Demand (XED) measures how quantity demanded of one good responds to price changes in another and indicates if goods are substitutes or complements. 3) Income Elasticity of Demand (YED) measures how quantity demanded responds to changes in income and indicates if goods are necessities, superior, or inferior. Price Elasticity of Supply (PES) also measures how quantity supplied responds to price changes and depends on production time, costs

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
    Download as odt, pdf, or txt
    97 views3 pages

    IBDP Economic HL Chapter 4 Notes

    Uploaded by

    Aditya Rathi
    This document summarizes different types of elasticities: 1) Price Elasticity of Demand (PED) measures how quantity demanded responds to price changes and depends on availability of substitutes, necessity of goods, and time period. 2) Cross Elasticity of Demand (XED) measures how quantity demanded of one good responds to price changes in another and indicates if goods are substitutes or complements. 3) Income Elasticity of Demand (YED) measures how quantity demanded responds to changes in income and indicates if goods are necessities, superior, or inferior. Price Elasticity of Supply (PES) also measures how quantity supplied responds to price changes and depends on production time, costs

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
    Download as odt, pdf, or txt
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    At a glance
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    The key takeaways are the three types of elasticities discussed - price elasticity of demand, cross elasticity of demand, and income elasticity of demand. Elasticities measure the responsiveness of quantity demanded or supplied to changes in other variables like price and income.

    The three types of elasticities discussed are: 1) Price Elasticity of Demand, 2) Cross Elasticity of Demand, and 3) Income Elasticity of Demand.

    Factors that affect price elasticity of demand include the number and closeness of substitutes, whether the good is a necessity or not, and the time period considered.

    Chapter 4 – Elasticities 9/10

    Elasticity of demand ~> how much the demand for a product changes when there is a
    change in one of the factors that determine demand
    3 types:
    1) Price Elasticity of Demand(PED)
    2) Cross Elasticity of Demand(XED)
    3) Income Elasticity of Demand(YED)

    1/ Price Elasticity of Demand – PED


    Definition: The responsiveness of change in quantity demanded to a change in its price

    Formula: % Δ in Quantity Demanded / % Δ in Price

    PED value range


    • 1 < Answer < ∞ ~> Elastic
    • 0 < Answer < 1 ~> Inelastic
    • Answer = 1 ~> Unitary elasticity

    • Answer = ∞ ~> Perfectly elastic


    • Answer = 0 ~> Perfectly inelastic

    How to increase revenue


    • Inelastic ~> Increase Price
    • Elastic ~> Decrease Price

    Factors affecting PED Nasty Snake Cuts Nine Tangerines ~> NSCNT
    1) Number of Substitutes a good has and the Closeness between the substitutes
    ~> The more substitutes there are and the closer the substitutes = Good is more
    elastic (&vice versa)
    2) Weather the good is a Necessity or not
    ~> If the good is a necessity = inelastic (&vice versa)
    3) Time period considered
    ~> Takes time for buying habits of consumers to change
    ~> Inelastic in short term but Elastic in long term
    2/ Cross Elasticity of Demand – XED
    Definition: The responsiveness of the change in quantity demanded for one product to a
    change in price for another product. Calculates weather two goods are complements or
    substitutes.

    Formula: % Δ in Quantity Demanded for Product X / % Δ in Price of product Y

    XED value range


    • Positive ~> Substitute goods, <<+ = subs>>
    • Negative ~> Complementary goods, <<– = comp>>
    • Zero ~> Unrelated products
    • The larger the positive value is, the closer the goods are as substitutes
    • The larger the negative value is, the closer the goods are as complements

    3/ Income Elasticity of Demand – YED


    Definition: The responsiveness of the change in quantity demanded to a change in
    consumer income.

    Formula: % Δ in Quantity Demanded for a Product / % Δ in Income of a consumer

    YED value range


    • Positive ~> 0 < answer < 1 = essential products/necessities EG: bread
    ~> 1 < answer = superior products/non-essential EG: holidays
    • Negative, answer < 0 = Inferior goods EG: cheap wine

    Elasticity of Supply ~> how much the supply for a product changes when there is a
    change in one of the factors that determine supply

    Price Elasticity of Supply – PES


    Definition: The responsiveness of the change in quantity supplied to a change in the
    product's price.

    Formula: % Δ in Quantity Supplied / % Δ in Price


    PES value range
    • 1 < Answer < ∞ ~> Elastic
    • 0 < Answer < 1 ~> Inelastic
    • Answer = 1 ~> Unitary elasticity

    • Answer = ∞ ~> Perfectly elastic


    • Answer = 0 ~> Perfectly inelastic

    Factors affecting PES


    • Time
    ~> The longer it takes to produce, the more inelastic a good will be.
    • How much total cost of production rises as output rises
    ~> If producing more causes total cost of production to rise by a large amount, the
    good will remain inelastic.
    ~> Too expensive to start producing immediately for company won't be able to
    cover its rising costs.
    • The more(and easily) stocks that can be stored, the more elastic the good is.
    ~> When the price changes, the stored stock of goods can just be released instead
    of producing more.
    • Manufactured goods are elastic. Agricultural goods are inelastic.
    ~> Manufactured goods take shorter time to produce while agricultural goods take
    longer time to produce.

    Ticklish Pigeons Sell Many Apples

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