In microeconomics a topic I struggle with is Elasticity. So this is a series of posts to consolidate my understanding.
There are 4 types to know about for AS.
Price Elasticity of Demand (PED)
The first type is price elasticity of demand, which measures the responsiveness of demand to a change in price.
It is measured by the following formula
Price Elasticity of Demand (PED) = %Change in Quantity Demanded/ %Change in Price
Demand is price elastic if a change in price causes a bigger percentage change in demand.
Elastic Demand Products are those that are luxury (not necessary) as they represent a large percentage of disposable income. e.g. Large Holidays. Items which also have competition also have elastic demand as consumers can switch easily. e.g. Different brands of the same product (bread) Equally products that are frequently bought are price elastic as consumers are more likely to compare prices and switch if they find an alternative. E.g Butter
Inelastic demand products are those that have few substitutes e.g. petrol, necessities meaning you have to buy them, things that are addictive, as you will pay higher prices, items that take up a small percentage of your income, meaning you worry less if prices rise, and items in the short run, as it takes time for consumers to find alternatives and switch to them.
Inelastic demand products are those that have few substitutes e.g. petrol, necessities meaning you have to buy them, things that are addictive, as you will pay higher prices, items that take up a small percentage of your income, meaning you worry less if prices rise, and items in the short run, as it takes time for consumers to find alternatives and switch to them.
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