Ped, Xed, Yed

Explain the concept of elasticity of demand.

Elasticity is a measure of responsiveness. It measures how much something changes when there is a change in one of the factors that determines it. There are three types of elasticity of demand. There are price elasticity of demand (PED) , cross elasticity of demand ( XED) and income elasticity of demand ( YED ).

Cross elasticity of demand (XED) is a measure of how much the demand for a product changes when there is a change in the price of another product. The XED can be measured by using the equation = (Percentage chnage in quality demanded of product X)/(Percentage change in price of product Y) .

Price elasticity of demand is a measure of how much the quantity demanded of a product changes when there is a change in the price of a product.

PED = Percentage change in quantity demanded of the product

Percentage change in price of the product

The value of PED is less than one and greater than zero. If a product has an inelastic demand, then a change in the price of the product leads to a proportionally smaller change in the quantity demanded of it. If PED is equal to zero, then a change in the price of a product will have no effect on the quantity demanded at all. So, it is said to be perfectly inelastic demand.The value of PED is greater than one and less than infinity. If a product has elastic demand, then a change in the price of the product leads to a greater than proportionate change in the quantity demanded of it.If PED value is equal to infinity, then quantity demanded of a product is infinitely responsive to price change. Hence, it is said to be perfectly elastic demand.The value of PED is equal to one. If a product has unit elastic demand, then a change in the price of the product leads to a proportionate, opposite, change in the quantity demanded of it. So, it is unit elastic demand.

XED explains the...