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Lesson 6

The document discusses different types of elasticity including price elasticity, income elasticity, and cross elasticity. It defines elasticity as a measure of the responsiveness of quantity to changes in its determinants like price. The document provides examples and formulas for calculating the price elasticity of demand and supply, and explains what it means for something to be elastic, inelastic, or unitary based on the elasticity coefficient.

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maria genio
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204 views21 pages

Lesson 6

The document discusses different types of elasticity including price elasticity, income elasticity, and cross elasticity. It defines elasticity as a measure of the responsiveness of quantity to changes in its determinants like price. The document provides examples and formulas for calculating the price elasticity of demand and supply, and explains what it means for something to be elastic, inelastic, or unitary based on the elasticity coefficient.

Uploaded by

maria genio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Elasticity of

Supply and
Demand
Ojectives:

At the end of the session the students are


expected :

• Define Elasticity
• Identify the different kinds of elasticity
• Explain and cite examples of the different
types of elasticity.
OTHER CONCEPTS OF
ELASTICITY

Elasticity- It is a measure used in response


to changes in the determinants of demand
and supply.

Price Elasticity- a measure used in


determining the percentage change in
quantity against the percentage change in
price
OTHER CONCEPTS OF
ELASTICITY

Income Elasticity- the percentage change in


quantity compared to the percentage change
in income.

Cross Elasticity- the percentage change in


quantity of one good compared to the
percentage change in the price of related
goods.
Price Elasticity of Demand

Price Elasticity of Demand- refers to the


degree of reaction or response of the
buyers to changes in price of goods and
services.
Example:
The price of rice of P16.00 per kilo at
retail, leads a daily total sales among all
markets in a given region of 100,000 kilos.
The price then rises to P16.50 per kl. Which
leads to sales of P97,000 kilos, or a
reduction in the amount of P3,000. What is
the response of quantity sold to the change
in the price of rice?
Example:
Demand Schedule of Commodity X

Price Quantity Demanded


4 100
5 60
Interpretation of Elasticity

<1---Inelastic
=1---Unitary
>1---Elastic
To derive the price elasticity of
demand, we use the formula:

ep= Percentage change in quantity demanded


Percentage change in price
Where: percentage change in quantity demanded=
Q2-Q1
Q1
percentage change in price= P2-P1
P1
Types of Elasticity

Elastic- when a percentage change in price


leads to a proportionately greater percentage
change in quantity demanded. This means
that a 1% change in price calls for more than
1% change in quantity demanded.
- The elasticity coefficient is more than 1.
Types of Elasticity

Inelastic- demand is described as inelastic


when a percentage change in price results in
a proportionately lesser change in price
evokes less than 1% change in quantity
demanded.
- The coefficient of elasticity is less than 1.
Unitary

Unitary- when a percentage change in price


leads to a proportionately equal percentage
in quantity demanded.
- The coefficient of elasticity is equal to 1.

Perfectly Elastic- at a given price,


percentage change in quantity demanded
can change infinitely.
Unitary

Perfectly Inelastic- a percentage change in


price creates no change in quantity
demanded. There is no change in the
quantity demand.
- The coefficient is 0.
Activity:
1. Demand Schedule for Rice

Price Quantity Demanded


150 15,000
154.50 14,550
Activity:
2. Demand Schedule for Burger

Price Quantity Demanded


35 500
37 450
Activity:
3. Demand Schedule for Suman

Price Quantity Demanded


7 100
9 80
Interpret your answer whether it is Elastic,
Inelastic and Unitary.
Price Elasticity of Supply

es= Percentage change in quantity supplied


Percentage change in price
Income Elasticity

ey= Percentage change in quantity


Percentage change in income
Example:
Demand Schedule of Commodity X

Price Quantity Demanded


P12.00 38
P21.00 56
Cross Elasticity

ec= Percentage change in QD of Good A


Percentage change in price of Good B

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