Economics Notes: Elasticity
1. Price Elasticity of Demand (PED)
Measures responsiveness of quantity demanded to a change in price.
Formula: % change in QD / % change in Price
Elastic (PED > 1): responsive to price changes.
Inelastic (PED < 1): not very responsive.
2. Determinants of PED
Availability of substitutes
Necessity vs. luxury
Time period
Proportion of income spent on the good
3. Price Elasticity of Supply (PES)
Measures responsiveness of quantity supplied to a change in price.
Formula: % change in QS / % change in Price
Elastic (PES > 1) vs. Inelastic (PES < 1)
4. Determinants of PES
Time period
Spare capacity
Stock levels
Flexibility of production
5. Income Elasticity of Demand (YED)
Measures how demand changes with income.
Formula: % change in QD / % change in Income
Normal goods: YED > 0
Inferior goods: YED < 0
