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Income elasticity of demand; its determinants and applications

Obviously, you all did your homework (except for __________?) and have already watched the above video on XED... hand in your graphs now. We will watch the YED graph together and then discuss both concepts and do some tasks, and then move on to PES.

- Outline the concept of income elasticity of demand, understanding that it involves responsiveness of demand (and hence a shifting demand curve) to a change in income.

- Calculate YED using the following equation
**YED=%ΔQd/%ΔY** - Show that normal goods have a positive value of YED and inferior goods have a negative value of YED.
- Distinguish, with reference to YED, between necessity (income inelastic) goods and luxury (income elastic) goods.

- Outline the concept of cross price elasticity of demand, understanding that it involves responsiveness of demand for one good (and hence a shifting demand curve) to a change in the price of another good.

- Calculate XED using the following equation
**XED=%ΔQd of Good X/%ΔP of Good Y** - Show that substitute goods have a positive value of XED and complementary goods have a negative value of XED.
- Explain that the (absolute) value of XED depends on the closeness of the relationship between two goods.

- Explain the concept of price elasticity of supply, understanding that it involves responsiveness of quantity supplied to a change in price along a given supply curve.
- Calculate PES using the following equation
**PES=%ΔQs/%ΔP** - Explain, using diagrams and PES values, the concepts of elastic supply, inelastic supply, unit elastic supply, perfectly elastic supply and perfectly inelastic supply.
- Explain the determinants of PES, including time, mobility of factors of production, unused capacity and ability to store stocks.

Obviously, you all did your homework (except for __________?) and have already watched the above video on XED... hand in your graphs now. We will watch the YED graph together and then discuss both concepts and do some tasks, and then move on to PES.