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    Bac1 Actvty 1 (271), Plamos, Erwin C.

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    Kian Mellina
    Elasticity refers to the responsiveness of demand or supply to changes in other variables like price or income. Price elasticity measures the percentage change in quantity demanded from a percentage change in price. Cross price elasticity measures the responsiveness of demand for one good to a change in price of another good. Income elasticity measures the percentage change in demand from a percentage change in income.

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    Bac1 Actvty 1 (271), Plamos, Erwin C.

    Uploaded by

    Kian Mellina
    9 views2 pages
    Elasticity refers to the responsiveness of demand or supply to changes in other variables like price or income. Price elasticity measures the percentage change in quantity demanded from a percentage change in price. Cross price elasticity measures the responsiveness of demand for one good to a change in price of another good. Income elasticity measures the percentage change in demand from a percentage change in income.

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    BAC1 ACTVTY 1[271], PLAMOS, ERWIN C.

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    Elasticity refers to the responsiveness of demand or supply to changes in other variables like price or income. Price elasticity measures the percentage change in quantity demanded from a percentage change in price. Cross price elasticity measures the responsiveness of demand for one good to a change in price of another good. Income elasticity measures the percentage change in demand from a percentage change in income.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views2 pages

    Bac1 Actvty 1 (271), Plamos, Erwin C.

    Uploaded by

    Kian Mellina
    Elasticity refers to the responsiveness of demand or supply to changes in other variables like price or income. Price elasticity measures the percentage change in quantity demanded from a percentage change in price. Cross price elasticity measures the responsiveness of demand for one good to a change in price of another good. Income elasticity measures the percentage change in demand from a percentage change in income.

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    © All Rights Reserved
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    Download as pdf or txt
    of 2

    Name: Erwin C.

    Plamos
    Course and Year: BSBA-2FMC
    Instructor: Ruby Jean Trinidad Uriarte
    Date: September 1, 2021

    Define and expound what elasticity is.


    Elasticity is a concept which involves examining how responsive demand (or supply) is to a change in another
    variable such as price or income. The basic idea of elasticity, how a percentage change in one variable causes
    a percentage change in another variable does not just apply to the responsiveness of supply and demand to
    changes in the price of a product. Recall that quantity demanded (Qd) depends on income, tastes and
    preferences, population, expectations about future prices, and the prices of related goods. Similarly, quantity
    supplied (Qs) depends on the cost of production, changes in weather (and natural conditions), new technologies,
    and government policies. Elasticity can, in principle, be measured for any determinant of supply and demand, not
    just the price.

    Explain the difference between price elasticity and cross price elasticity.

    Price Elasticity of Demand Cross Elasticity of Demand


    The proportionate (percentage) change The proportionate change in quantity demanded of a
    in quantity demanded of a product due to commodity due to change in price of another commodity (like the
    proportionate (percentage) change in its price is substitute or the complementary good) is called as cross elasticity
    measured by the price elasticity of demand. of demand.

    The coefficient of Price Elasticity of The positive coefficient of cross elasticity shows that the
    demand is always negative due to inverse given commodities are substitutes. Negative cross elasticity
    shows that the given commodities are complementary to each
    relation between price and quantities demanded other. And when it is zero, then the given commodities are
    (Though it is stated as a positive number). unrelated to each other.

    The coefficient of price elasticity shows The coefficient of cross elasticity shows the relation
    different degrees of price elasticity like elastic, between the given set of goods.
    inelastic and unitary demand.
    The formula for cross Elasticity of demand is as stated
    The formula for price elasticity of demand below:
    is: % change in quantity demanded of commodity A
    % change in quantity demanded % change in price of commodity B
    % change in price

    Give an example on how income elasticity work


    The income elasticity of demand is the percentage change in quantity demanded divided by the percentage
    change in income. Or measures the responsiveness of demand to a change in income.

    Income elasticity of demand (YED) = % change in demand / % change in income


    If income rises 10%
    Demand for Tesco bread falls 5%. YED = -0.5 (inferior good)
    Demand for butter increases 8%. YED = 0.8
    Demand for organic bread increases 17%. YED = 1.7

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