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The Concept of elasticity-Module3-gINA

This document discusses the concept of elasticity in economics. It defines elasticity as measuring the responsiveness of quantity demanded or supplied to changes in price or other factors. It then explains the different types of elasticity, including price elasticity of demand which is calculated using a formula to determine how sensitive demand is to price changes. The document also discusses elasticity of supply and how to calculate it using a similar formula. Sample problems are provided for both price elasticity of demand and elasticity of supply calculations.

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82 views8 pages

The Concept of elasticity-Module3-gINA

This document discusses the concept of elasticity in economics. It defines elasticity as measuring the responsiveness of quantity demanded or supplied to changes in price or other factors. It then explains the different types of elasticity, including price elasticity of demand which is calculated using a formula to determine how sensitive demand is to price changes. The document also discusses elasticity of supply and how to calculate it using a similar formula. Sample problems are provided for both price elasticity of demand and elasticity of supply calculations.

Uploaded by

shek
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 PPTX, PDF, TXT or read online on Scribd
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THE CONCEPT OF

ELASTICITY
Managerial Economics (ECON 101)
MODULE 3
By: Gina Marie V. Fuentes
LEARNING OBJECTIVES

⦿In this chapter you will learn the meaning of


elasticity. You will also learn why this
concept is very important to our everyday
decision-making processes as consumer.
WHAT IS ELASTICITY?

Changes in price ( or other factors ) may not


affect the demand or supply of any good and
services. It is the measure of sensitivity or
responsiveness of quantity demanded or
quantity supplied to change in prices (or other
factor). It concerns both supply and demand.
ELASTICITY OF DEMAND
⦿ Demand elasticity “indicates the extent to which changes
in price (or other factors) cause changes in the quantity
demanded.

Price Elasticity of Demand


is used to determine the responsiveness of demand to
changes in the price of the commodity. It may calculated
with this formula below:
Ep= percentage change in quantity demanded
percentage change in price
= QD2-QD1/QD1
P2 – P1/P1
where Ep = price elasticity of demand
QD2 = new quantity demanded
QD1 = original quantity demanded
P2 = the new price
P1 = the original price.
CLASSIFICATION OF ELASTICITY
⦿Elastic – is a type of demand where the quantity
that will be bought is affected greatly by the
changes in price. The change must be greater
than elasticity coefficient of 1.
⦿Inelastic – refers to the demand where a
percentage change in price creates a lesser
change in quantity demanded. The elasticity
coefficient in this type is less than 1.
⦿Unitary – a change in price creates an equal
change quantity demanded. Elasticity under the
unitary demanded is equal to the coefficient of
1.
SAMPLE PROBLEM
⦿What is the demand elasticity given the
following:
1.original quantity demanded = 10,000 kg
2.original price = P 5.00 per kilo
3.new quantity demanded = 16,000 kg
4.new price = P4.00 per kilo
ELASTICITY OF SUPPLY
⦿Elasticity of supply refers to the responsiveness
of the sellers to change in price. This may be
determined by computing for the percentage
change in the quantity supplied of a good divided
by the percentage change in the price. The
mathematical formula for determining elasticity
of supply is:
Es = percentage change in quantity supplied
percentage rise in price
= QS2- QS1/ QS1
P2 – P1 /P1
where
Es = price elasticity of supply
QS2 = new quantity supplied
QS1 = original quantity supplied
P2 = new price
P1 = original price
SAMPLE PROBLEM
⦿What is the supply elasticity given the
following:
1.New quantity supplied (QS2) = 11,000 kilos
2.Old quantity supplied (QS1) = 10,00 kilos
3.new price = P 6.00/kilo
4.old price = P 5.00/kilo

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