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    ECO 415 CH 3 eLASTICITY

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    Mohd Zaid
    This document discusses elasticity of demand and supply. It defines elasticity as the sensitivity or responsiveness to changes that can affect demand or supply. There are three main types of elasticity discussed: price elasticity of demand, income elasticity of demand, and cross elasticity of demand. It provides formulas and degrees (elastic, inelastic, unitary, etc.) for each type and discusses key determinants that impact elasticity. Elasticity of supply is also covered briefly.

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    ECO 415 CH 3 eLASTICITY

    Uploaded by

    Mohd Zaid
    65 views10 pages
    This document discusses elasticity of demand and supply. It defines elasticity as the sensitivity or responsiveness to changes that can affect demand or supply. There are three main types of elasticity discussed: price elasticity of demand, income elasticity of demand, and cross elasticity of demand. It provides formulas and degrees (elastic, inelastic, unitary, etc.) for each type and discusses key determinants that impact elasticity. Elasticity of supply is also covered briefly.

    Original Title

    ECO 415 Ch 3 eLASTICITY (3)

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    This document discusses elasticity of demand and supply. It defines elasticity as the sensitivity or responsiveness to changes that can affect demand or supply. There are three main types of elasticity discussed: price elasticity of demand, income elasticity of demand, and cross elasticity of demand. It provides formulas and degrees (elastic, inelastic, unitary, etc.) for each type and discusses key determinants that impact elasticity. Elasticity of supply is also covered briefly.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    65 views10 pages

    ECO 415 CH 3 eLASTICITY

    Uploaded by

    Mohd Zaid
    This document discusses elasticity of demand and supply. It defines elasticity as the sensitivity or responsiveness to changes that can affect demand or supply. There are three main types of elasticity discussed: price elasticity of demand, income elasticity of demand, and cross elasticity of demand. It provides formulas and degrees (elastic, inelastic, unitary, etc.) for each type and discusses key determinants that impact elasticity. Elasticity of supply is also covered briefly.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    CHAPTER 3

    ELASTICITY OF DD

    Def : sensitivity / responsive to ∆ that can effect


    dd

    Elasticity of dd
    i. P : when P ∆, how much qt dd ∆
    ii. Y : when Y ∆, how much qt dd ∆
    iii. cross E : what will happen to dd of x when Py ∆
    i) Price Elasticity Of dd

    Degrees of P E
    • dd is elastic : E > 1 (∆Q > ∆P)
    • dd is inelastic : E < 1 (∆Q < ∆P)
    • dd is unitary elastic : E = 1 (∆Q = ∆P)
    • dd is perfectly elastic : E = ∞ (P unchanged but Q∆)
    • dd is perfectly inelastic : E = 0 (P∆ but Q unchanged)

    Formula = ( – % ∆ in Qx / % ∆ in P)
    = ( – ∆ in Qx / Q0 ) x ( Px0 / ∆ in Px )
    Determinants Of PED
    i. Substitutability
    ii. Relative importance of the goods in the budget
    iii. Time dimension (SR vs LR)
    iv. Status of goods (luxury vs necessity)
    v. Income level
    vi. Habits
    P E vs Total Revenue
    TR = P x Q

    TR ↑↓ when P ∆ therefore will affect E of dd


    Eg :
    • If dd elastic, when P ↓, TR ↑
    • If dd inelastic, when P ↓, TR ↓
    • If dd unitary, if P ∆, TR unchange
    ii) Y Elasticity Of dd
    Degrees of Y E
    • YE is +ve (0 – 1) : when Y ↑ 1%, dd ↑
    • YE > 1 : when Y ↑ 1%, dd ↑ > 1%
    • YE < 0 : when Y ↑ 1%, dd ↓
    • YE = 0 : when Y ↓, no effect on dd

    Formula = ( – % ∆ in Qx / % ∆ in Y)
    = ( – ∆ in Qx / Q0 ) x ( Y0 / ∆ in Y )
    iii) Cross Elasticity Of dd
    - Responsiveness of dd for product x to a change in P
    of related product (product y)

    Degrees of Cross E
    • Positive : when Px ↑, dd y ↑ (-ve r/ship)
    • Negative : when Px↑, dd y ↓ (+ve r/ship)
    • Cross Price E = 0 (no r/ship)

    Formula = ( – % ∆ in Qx / % ∆ in Py)
    = ( – ∆ in Qx / Q0 ) x ( Py0 / ∆ in Py )
    ELASTICITY OF SUPPLY

    - Responsiveness of qt ss to a ∆ in P

    Degrees of E ss
    • E ss > 1 (fairly elastic) : %∆in qt ss > % ∆ in P
    • E ss < 1 (fairly inelastic) : %∆in qt ss < % ∆ in P
    • E ss = 1 (unitary elastic) : %∆in qt ss = % ∆ in P
    • E ss = 0 (perfectly inelastic) : %∆in qt ss = 0, P∆
    • E ss = ∞ (perfectly elastic) : %∆in qt ss is infinitely large, P
    unchanged

    Formula = (% ∆ in Qx / % ∆ in P)
    = (∆ in Qx / Q0 ) x ( Px0 / ∆ in Px )
    Determinants Of PES
    i. Time
    ii. Nature of the goods
    iii. Cost & feasibility of storage
    iv. Substitutability of factors or inputs used
    v. Perishability
    Notes To Ponder – Determinants
    DD SS PED PES
    • Income – normal • No of sellers • Substitutability • Time
    vs inferior goods • P of related • Relative • Nature of the
    • P of related goods – comp vs importance of goods
    goods – comp vs sub the goods in the • Cost & feasibility
    sub • Cost of factor of budget of storage
    • Tastes & prodn • Time dimension • Substitutability
    preferences • Govt policies – eg (SR vs LR) of factors or
    • Govt policies – : import T, • Status of goods inputs used
    eg : T, Subsidies, Subsidies, (luxury vs • Perishability
    IR • Techno necessity)
    • Population development • Income level
    • P expectation • Length of time • Habits
    • seasons
    Notes To Ponder – Elasticity
    PED YED CED PES
    To determine To determine To determine To determine
    type of elasticity type of goods type of r/ship type of elasticity
    •Elastic •Luxury •Complement •Elastic
    •Inelastic •Normal •Substitute •Inelastic
    •Unitary •Necessity •No relation •Unitary
    •Perfectly elastic •Giffen •Perfectly elastic
    •Perfectly •Perfectly
    inelastic inelastic

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