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Elasticities of Economics
There are a lot of measures in economics to measure changes in variable sin relation to change of another variable and these are called elasticities. These are the things that I am going to talk about today and what we can imply from these values.
Price Elasticity of Demand(PED):
PED shows the changes in demand of a product in relation to its price. For products with a very high elasticity, the products tends to be in perfect competition and so substitutes will increase in demand due to the substitution effect. For lower PEDs this suggests that the product is a addictive good, suggesting that a large change in price won’t have a large effect on the quantity demanded and examples of this would alcohol and cigarettes. PED tends to be a negative value because of the law of demand however, for ease of reading, people present it as a negative number, however there are exceptions to this such as giffen goods who’s quantity demanded increases with its price.
If the PED>1, this suggests that the product is elastic which means a small change in price will cause a large change in the quantity demanded while if the PED<0, this suggests that the price is inelastic. If PED=1, this suggests that there is unitary elasticity which means relatively little change.
