# Elasticity HM2413C

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Elasticity HM2413C

## 7. Cross Elasticity of Demand (CED)_ Group 4

### 7.1. Definition

7.1.1. The ratio of % change in the quantity demanded of a good service to a given % change in the price of a related good

7.1.1.1. % change in quantity of good A demanded / % change in price of good B

## 13. Past Year Question 1_GROUP 5

### 13.2. Define price elasticity of demand.

13.2.1. the responsiveness of quantity demanded of a product to a change in the product's own price .

### 13.3. Four (4) determinants of price of elasticity of demand for tourism packages.

13.3.1. 1. availability of products.

13.3.1.1. for example: if the price of a particular travel company of travel packages increases, the quantity demanded for it will fall by a larger percentage because there are many other travel company of substitutes travel package.

13.3.2. 3. types of the product.

13.3.3. 4. habits.

## 18. Interpretation of CED

### 18.1. POSITIVE SIGN ( 1 < eX > 0 )

18.1.1. Demand for one good will increase if the price of the other good increase

18.1.2. Example: Subtitute goods (orange juice & apple juice; beef and lamb)

### 18.2. NEGATIVE SIGN ( 1 < eX > 0 )

18.2.1. Demand for one good will increase if the price of the other good decrease

18.2.2. Example : Complementary goods (Coffee & skimmed milk entertainment & food)

### 18.3. eX = 0

18.3.1. Demand for one good is not affected when there is a changes in the price other good

18.3.2. Example: Two goods are not related (Cloths & Bicycle, Cutlery & Air-Conditioner

## 21. 4. Nature of market- when products cam be sold in different markets, supply becomes more elastic.

### 21.1. Relationship between Total Revenue and Elasticity

21.1.1. Elastic Demand

21.1.1.1. Positive sign : demand for one good will increase if the price of the other goods increase.

21.1.2. Inelastic demand in economics is when people buy about the same amount whether the price drops or rises. That happens with things people must have, like gasoline

21.1.3. Inelastic Demand

21.1.4. Unitary Elastic Demand

## 25. Price Elasticity of Demand (PED)_Group 1

### 25.1. Definition

25.1.1. Measure responsiveness of Quantity Demand of a product to a change in the price of product.

### 25.2. Degree

25.2.1. 1. Fairly Elastic

25.2.1.1. Demand is said to be fairly elastic when the coefficient is >1. The percentage 🔺 in Quantity Demand is greater than the percentage 🔺 in price

25.2.2. 2. Fairly Inelastic

25.2.2.1. Demand is inelastic if the coefficient is <1. The percentage 🔺 in Quantity Demand is smaller than the percentage 🔺 in price.

25.2.3. 3. Unitary Elastic

25.2.3.1. Demand exist if the coefficient is =1. Percentage 🔺 in Quantity Demand is equal to the percentage 🔺 in price.

25.2.4. 4. Perfectly Elastic

25.2.4.1. Demand is refers to a demand which is super sensitive to a price 🔺. A small percentage 🔺 in price brings about an infinite to percentage 🔺 in Quantity Demand.

25.2.5. 5. Perfectly Inelastic

25.2.5.1. Demand has coefficient of 0. This means that Quantity Demand does not 🔺 as the price 🔺.

### 25.3. Determinants

25.3.1. 1. Availability of substitutes

25.3.1.1. Demand is elastic, if the product have many substitute and inelastic if it has few substitute. Eg : if the price of a particular brand detergent increases the quantity demanded for it will fall by a larger % bcs there are many other brand of substitute detergents.

25.3.2. 2. Share of budget spent on the product

25.3.2.1. If consumer a large portion of their income or budget on a product its demand will be elastic otherwise the demand will be inelastic.

25.3.3. 3. Types of the product

25.3.3.1. For luxuries, the demand will be elastic, but for necessities or essential the demand will be inelastic.

25.3.4. 4. Habits

25.3.4.1. If the demand for a product is associated with some habit, eg: cigarette with smoking or alcohol drinking habits, their demand will be inelastic bcs these products hve become necessities for them. Therefore, a price increase.

25.3.5. 5. Time

25.3.5.1. In a short period of time, the demand may be inelastic bcs of difficulties in finding substitutes or bcs customers do not hve enough time to make adjustments to a price 🔺.

## 26. Past Year Questions 2 _ Group 6

### 26.1. Jan 2018, Part C, Question 1 (b)

26.1.1. Define income elasticity of demand and how income can be used to classify the type of goods in the market.

26.1.1.1. Ey = percentage change in demand

26.1.1.2. If normal goods, Ey would be positive. And increase in the normal income would be increase the quantity demanded of each price. If inferior goods, Ey would be negative. An increase in the income would decrease the quantity demanded at each price.

26.1.1.3. The percentage change in demand for any goods , holding its price constant, divided by the percentage change in income.