2.2.1 Definitions of PED, YED and XED
Definition: Price elasticity of demand (PED) measures the responsiveness of quantity demanded of a good to a change in its own price.
Definition: Income elasticity of demand (YED) measures the responsiveness of quantity demanded of a good to a change in consumer income.
Definition: Cross elasticity of demand (XED) measures the responsiveness of quantity demanded of one good to a change in the price of another good.
Example: PED: how much demand for petrol responds to a fuel price rise. YED: how demand for cars responds to rising incomes. XED: how demand for Airtel plans responds to a change in Jio tariffs.
Analysis chain (AO2): Elasticity measures responsiveness in percentage terms → allows comparison across goods with different units and prices → helps firms and government predict the effect of a price, income or tax change.
Evaluation (AO3):
- Elasticity values are estimates from past data and change over time as tastes, incomes and substitutes change.
🔒 Also in the full notes
- 2.2.2 Formulae and calculation
- 2.2.3 Significance of relative percentage changes, size and sign of the coefficient
- 2.2.4 Descriptions of elasticity values
- 2.2.5 Variation in PED along a straight-line demand curve
- 2.2.6 Factors affecting PED, YED and XED
- 2.2.7 Relationship between PED and total expenditure (revenue)
- 2.2.8 Implications for decision-making
- Exam practice: 7 practice questions
- 3 exemplar answers with full model answers and mark breakdowns
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