Chapter 3: Elasticity

Q: PED, PES, YED determinants & its application to business and government
A:
 PED
o SPLAT
o S – Substitutability of goods – if goods are substitutable than it is in fact
possible for the goods to be highly elastic so in that sense if there are not
a lot of substitutable goods than that its inelastic.
o Luxury or Necessity  if it is a necessity than it’s the case that necessary
goods become inelastic as something like insulin that is necessary almost
to the point when Qs will change a little and then proportion of income
will affect it.
o Addictiveness: the addictiveness of a good like a cigarette will become
inelastic for PED
o Time lag- with more time, it gives time for goods to be able to find
substitutable goods. However, if its not the case then it would be more
inelastic.
 Application
o Businesses  will find that consumers who find highly elastic to a goods
with its prices will supply accordingly. While governments will do so if its
addictive good then it will be inelastic.
 PES
o 3 time periods
 Market period
 Most inelastic in the supply as in its automatic and right
away in that manner can react to changes right away
 Short - Run
 This period with more time can elapse and react
accordingly to the change.
 Long – Run
 This period is in which can react to a time change and with
this phase all the variables are in place in the long run
where supply is elastic
o Mobility of resources
 More elastic to those that are quick changes like simple labor stuff
rather than capital intensive
o Durability of stock
 Stock that is more durable rather than perishable is more inelastic
o In terms of a business and government standpoint, they will react
accordingly where timing of it.