Use of YED XED PES | Lecture Note - Edubirdie

University:
London School of Economics and Political Science
Course:
L400 | International Social and Public Policy
Academic year:

2023
Views:

135

Pages:

2
Author:

Prerna T

Use of YED: - In most economies, real disposable income increases, firms producing goods with a positive YED do well. - Opposite is likely for firms producing goods with a negative YED. - Firms might try and change the image of a good to make YED true. - When economies face uncertain short-term prospects or recessions, demand for YED products decreases. - Consumers tend to substitute their demand for inferior goods. Use of XED: - Important when firms operating in markets that are very competitive. - Where there are close substitutes, firms will be tempted to cut their own prices to steal market share from rivals. - Complementarity also has implications for firms depending on how close the prices are. Use of PES: - In many businesses, supply is inelastic in the short run. - It is often difficult to switch resources into the market. - An exception is when firms can hold stocks in anticipation of a price rise. - Long-term supply is elastic, as resources can be reallocated to respond to an increase in market price. • Firms will try to make PES as elastic as possible. ↳ hope they can cash in on a rise in prices by selling more of their product. ↳ if prices are falling, an elastic supply will enable them to move resources away from such products and into alternatives.

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