1.2.5 Elasticity

• What does elasticity measure in economics?

  Responsiveness to change
• Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price
• What is the formula for calculating PED?

  $PED =$$\frac{\% \Delta Quantity \ Demanded}{\% \Delta Price}$
• Factors affecting PED include the availability of substitutes
• What does income elasticity of demand (YED) measure?

  Responsiveness to income
• The formula for YED is: $YED =$$\frac{\% \Delta Quantity \ Demanded}{\% \Delta Income}$
• A positive YED indicates a normal good.
• A negative YED indicates an inferior good.
• Match the XED value with its relationship:

  XED > 0 ↔️ Substitutes

  XED < 0 ↔️ Complements

  XED = 0 ↔️ Unrelated
• Price elasticity of supply (PES) measures the responsiveness of quantity supplied to changes in price
• What is the formula for PES?

  $PES =$$\frac{\% \Delta Quantity \ Supplied}{\% \Delta Price}$
• A PES value of greater than 1 indicates that supply is elastic
• Understanding elasticity helps businesses make better pricing decisions.
• What does elasticity quantify regarding quantity demanded or supplied?

  Changes due to factors
• What is the formula for PED?

  PED = \frac{\% \Delta Quantity \ Demanded}{\% \Delta Price}</latex>
• The YED formula is: $YED =$$\frac{\% \Delta Quantity \ Demanded}{\% \Delta Income}$
• The XED formula is: $XED =$$\frac{\% \Delta Quantity \ Demanded \ of \ Good \ A}{\% \Delta Price \ of \ Good \ B}$
• What is the purpose of PED?

  Measures price responsiveness
• The formula for PED is: PED = \frac{\% \Delta Quantity \ Demanded}{\% \Delta Price}</latex>
• If a 10% increase in price leads to a 20% decrease in quantity demanded, what is the PED value?

  $PED =$$- 2$
• Match the PED type with its responsiveness:

  Elastic ↔️ Highly responsive

  Inelastic ↔️ Less responsive

  Unit Elastic ↔️ Proportional change
• Inelastic goods have a PED value between 0 and 1.
• Why is understanding elasticity important for businesses?

  Better pricing decisions
• Price Elasticity of Demand (PED) measures how much the quantity demanded of a good or service changes in response to a change in its price
• What is the formula to calculate Price Elasticity of Demand (PED)?

  $PED =$$\frac{\% \Delta Quantity \ Demanded}{\% \Delta Price}$
• If a 10% increase in the price of oranges leads to a 20% decrease in the quantity demanded, the PED is -2
• Oranges, with a PED of -2, are considered elastic because a small change in price significantly impacts demand.
• Match the type of elasticity with its value and responsiveness:

  Elastic ↔️ PED > 1, Highly responsive

  Inelastic ↔️ 0 < PED < 1, Less responsive

  Unit Elastic ↔️ PED = 1, Proportional response
• A product with a PED between 0 and 1 is considered inelastic
• In unit elasticity, demand changes proportionally with price.
• What does elasticity in economics measure?

  Responsiveness of variables
• The three main types of elasticity are PED, YED, and XED
• Cross-Price Elasticity of Demand (XED) measures how the quantity demanded of one good changes with the income of another.

  False
• Match the type of elasticity with its definition and example:

  Price Elasticity of Demand (PED) ↔️ Measures how quantity demanded changes with price, A 10% price increase reduces demand by 20%

  Income Elasticity of Demand (YED) ↔️ Measures how quantity demanded changes with income, A 5% income rise increases demand by 10%

  Cross-Price Elasticity of Demand (XED) ↔️ Measures how quantity demanded of one good changes with the price of another, A 10% coffee price rise increases tea demand by 5%
• Understanding elasticity helps businesses optimize their pricing and production strategies.
• What does Price Elasticity of Demand (PED) measure?

  Change in quantity demanded with price
• If a product has a PED > 1, it is considered inelastic.

  False
• What is the formula to calculate PED?

  $PED =$$\frac{\% \Delta Quantity \ Demanded}{\% \Delta Price}$
• Clothing is an example of a product with elastic demand.
• Gasoline has a PED value between 0 and 1, making it inelastic.