Glossary of Important Terms

Unit 3- Elasticity
Term
Cross
Elasticity of
Demand
(XED)

Definition
The measure of how
much the quantity
demanded of product
X changes when the
price of product Y is
altered
XED= %Qdx/%Py

Example

Determinants
of PED

Non-price factors
that determine the
elasticity of the
demand
Number and
closeness of
substitutes
Degree of
Necessity
Timeframe
Proportion
spendable
income
Non-price factors
that determine the
elasticity of the
supply
Spare capacity
FOP mobility
Timeframe
Ability to
store stock
The responsiveness
of a product to a
change in a variable

The more substitutes a product has the more elastic it is

as consumers can easily switch to the substitute if the
price of the product increases (White bread).
If a product has a high degree of necessity then its
quantity demanded is relatively constant no matter the
price, making it inelastic (Water).

Determinants
of PES

Elasticity

In the short term products are more inelastic as

producers cannot change to different resources as much
but in the long run the time period that is longer makes a
more elastic supply.

[XED]
[PED]
[YED]

Elastic
Demand

When the change in

Quantity Supplied is
greater than the
change in Price,
giving a positive
value more than 1.
PED> 1

Elastic Supply

When the change in

Quantity Supplied is
greater than the
change in Price
giving a positive
value more than 1.
PES>1

Elasticity of
Demand

The responsiveness
of the quantity
demanded to a
change in a variable.
Either: PED, XED or
YED

Elasticity of
Supply

The responsiveness
of the quantity
supplied to a change
in a variable.
Either: PES

Engle Curve

A graph that shows

how much of a
product consumers
demand as their real
income increases

Income
Elasticity of
Demand
(YED)

The measure of how

much the quantity
demanded changes
when there is a
change in real
income of individuals
YED= %Qd/%Yd

Inelastic
Demand

When the change in

Qd is smaller than
the change in P,
yielding a value less
than 1 (cannot be
less than 0)
0<PED<1

Inelastic
Supply

When the change in

Qs is smaller than the
change in P, yielding
a value less than 1
(cannot be negative)
0<PES<1

Revenue

The total amount of

money producers
make (in a set time
period) at a certain
price.
TR= Price*Quantity
demanded

Price
Elasticity of
Demand
(PED)

The measure of how

much the quantity
demanded changes
when there is a
change in price
PED=%Qd/%P

Price
Elasticity of
Demand for
Commodities

Inelastic PED
because they are in
high demand and
there are few
substitutes

Price
Elasticity of
Supply (PES)

The measure of how

much the quantity
supplied changes
when there is a
change in price
PES= %Qs/%P

Price
Elasticity of
Supply for
Commodities

Inelastic PES because

price doesnt affect
the quantity supplied
as it remains
constant usually
therefore the supply
is relatively inelastic

Primary
Commodities

Raw materials that

have few substitutes
and are needed to
produce
manufactured goods
Usually inelastic
The change in
quantity supplied is
the same as the
change in price,
giving a value of 1
PED=1 because
%Qd=%P

Unit Elastic
Demand

Unit Elastic
Supply

The change in
quantity supplied is
the same as the
change in price,
giving a value of 1
PES= 1 because
%Qs=%P
The graph passes
through the origin

Cocoa
There are no other substitutes of cocoa available to
produce chocolate, so the quantity demanded will remain
almost constant at any given price (inelastic, low PED and
PES)