Answer to Question #79339 in Microeconomics for DEON

Question

It is understandable that for the theories of Price elasticity of Demand and Income elasticity of Demand, for value that is more than 1, it is typically regarded as elastic.

Example,
PED > 1, PED is elastic
YED>1, YED is elastic, Normal good - Luxuy good

However, why must the value equates to 1 and not 10?

If PED> 1, example, PED is 1.2,
For a change in price of a particular product by 1.2 percent will result in a change of quantity demanded of that same product by 1.2 percent.
And because 1.2 percent is a very small value, shouldn’t PED be inelastic in this case??

This applies for YED.
If YED is 1.5, it suggests a change in income by 1.5 percent will result in a change of quantity demanded of a particular good by 1.5 percent. And since 1.5 percent is a small value, shouldn’t YED be inelastic and a necessity instead of a luxurious good??

Please advice, thanks.

Answer 1

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