Key Idea: Topic 2.5 covers three types of demand elasticity: PED (price), YED (income), and XED (cross-price). Each measures how responsive quantity demanded is to a change in one variable.
📐 Price elasticity of demand (PED)
PED = \\frac{\\%\\Delta Q_d}{\\%\\Delta P}
🔑 Determinants of PED
💰 PED and total revenue
Firms want to know PED: set prices higher for inelastic goods (petrol) and lower for elastic goods (supermarket sales).
📊 Income elasticity (YED) and cross-price elasticity (XED)
YED sign tells you the type of good. XED sign tells you the relationship between goods. Always state both the sign AND the magnitude.