Page 7 - E-NOTE

IED:

= % ∆ Q / % ∆ I

= ∆ Q / Q1 x I1 / ∆ I
= (Q2 - Q1) / Q1 x I1 / (I2 - I1)

PES:

= % ∆ Qx / % ∆ Px

= ∆Q / Q1 x P1 / ∆P

= (Q2-Q1) / Q1 x P1 / (P2-P1)

USES OF ELASTICITY….

PED: PRICING STRATEGY

• ELASTIC (PED > 1; % ∆ Q > % ∆ P)
• INELASTIC (PED < 1; % ∆ Q < % ∆ P)

CED: IDENTIFY THE RELATIONSHIP OF GOODS

• SUBSTITUTE (POSITIVE)

• COMPLEMENTARY (NEGATIVE)
• NO RELATIONSHIP (0)

IED: IDENTIFY THE TYPE OF GOODS

• NORMAL (EY >0; LUXURY (EY>1), NECESSITY (EY<1)
• INFERIOR (EY< 0)