PED
The definition of PED
It measure the reponsiveness of quantity demanded to a change in price
Definition of PES
PES is a numerical measure of the responsiveness of the quantity supplied to a change in the price of the product.
If the number of substitutes for a good increases, how will the PED of that good change?
An increase in substitutes raises the PED
The definition of "XED"
XED means the responsiveness of quantity demanded of a good to change in the price of another good
Definition of YED
How to calculate the PED?
Percentage change in quantity demanded over the percentage change in price.
The formula of PES
%change in quantity supply/%change in price
What are the general characteristics of PED for necessities?
PED < 1
The formula of XED
%change in quantity demanded of
Good A / %change in price of Good B
How to calculate YED
change in quantity demanded/change in price
Five value of PED
0＜|PED|＜1 price-inelastic demand
|PED|＞1 price-elastic demand
|PED|=0 perfectly inelastic demand
|PED|=♾️ perfectly elastic demand
|PED|=1 unit elastic demand
PES names in six different intervals
PES = 0: perfectly inelastic
PES < 1: inelastic
PES = 1, unitary
PES > 1, elastic
PES = ∞, inelastic
How are the PED of luxury goods different from that of necessities?
luxury PED>1
What is the relationship between goods If the value of XED is positive or negative
Positive value : Substitute goods (e.g., coffee and tea.
Negative value : Complementary goods (e.g., oil and cars).
The influence of YED on the company
decide what to produce
changing markets
Factors leading to PED elastic and inelastic behaviors
•The number and closeness of substitutes
•The percentage of consumers' income spent on the good
•The degree of necessity
•Habit-forming consumption
•Time period allowed for consideration
•The width of definition of goods and services
The factors affecting elasticity of supply
1the ease with which business can accumulate or reduce stocks of good
2the ease with which they can increase production
3investment
When a commodity's price drops, if the PED is less than 1, how will the total revenue change?
Total revenue decreases
The influence of XED on the company
Business Strategy: If two goods are substitutes, companies must monitor competitors' pricing. If they are complements, bundling strategies may be effective.
The influence of YED on the government
provide indirect tax
explain the change in economy structure
guidance to provide GS
The role of PED
Pricing strategy--whether to increase or decrease price based on the different PED
In what market environment is it possible for PES to be infinite in reality?
1Constant-Cost Industries in the Long Run
2Digital Goods with Near-Zero Marginal Cost
3Perfectly Competitive Markets with Instant Adjustments
In what industries is the supply of products likely to exhibit PES<1？
car producing，labour market
The influence of XED on the government
Policy Making: For example, increasing gasoline taxes may boost demand for electric vehicles (positive XED), supporting environmental goals.
YED's limitation
hard to collect data
useless when YED is0