2.2 Price elasticity, income elasticity and cross elasticity of demand

In this chapter you will learn how to:

• define the meaning of price elasticity, income elasticity and cross elasticity of demand (PED, YED, XED)
• use formulae to calculate price elasticity, income elasticity and cross elasticity of demand
• explain the importance of relative percentage changes, the size and sign of the coefficient in relation to price elasticity, income elasticity and cross elasticity of demand
• describe elasticity values: perfectly elastic, (highly) elastic, unitary elasticity, (highly) inelastic, perfectly inelastic
• explain the variation in price elasticity of demand along the length of a straight-line demand curve
• analyse the factors that affect price, income and cross elasticity of demand
• analyse the relationship between price elasticity of demand and total expenditure on a product
• discuss how price, income and cross elasticity of demand can affect decision-making.