Microeconomics

ELASTICITY
a measure of the Responsiveness of Quantity Demanded or Quantity
Supplied to a change in one of its determinants

Elasticity of Demand (Ed) Elasticity of Supply (Es)

The Price Elasticity Of Demand The Price Elasticity Of Supply

a measure of how much the quantity supplied
a measureof how much the quantity responds to a change in price
demanded responds to a change in price

FORMULATION FORMULATION
|Es|= |( Percentage in Quantity Demanded)
|Es|= |( Percentage in Quantity
( Percentage change in Price)|
Supplied)( Percentage change in Price)|

DETERMINANTS
Availability of Close Substitutes Flexibility to change the
Necessities Vs Luxuries amount of good produced
Definition of Markets Time Period
Time Horizon

CURVE VARIATIONS

Ed = 0 (Perfectly Inelastic) Es= 0 (Perfectly Inelastic)

0<Ed< (Elastic) 0<Es< (Elastic)
Ed=1 (Unit Elastic) Es=1 (Unit Elastic)
Ed= (Perfectly Elasticity) Es= (Perfectly Elasticity)

Breaking Down Elasticity Of Demand

Ed With Total Revenue Test Other Demand Elasticities
A total revenue The Income Elasticity Of
test is a test that
Demand (Ei)
approximates the
price elasticity of a measureof how much the quantity
demand by demanded changes as consumer income
comparing the changes
|Ei|= |(Percentage in Determinants
change in total
Quantity Demanded) 1. Normal Goods (Ei>0) Vs
revenue as a
(Percentage change in Inferior Goods (Ei<0)
result of changing
Price)| 2. Necessities (Ei<0)Vs
the product price.
Luxuries (Ei>0)
The total revenue
test assumes all The Cross-Price Elasticity Of
other factors that Demand (Exy)
may influence
revenue will a measureof how much the quantity
demandedof one good to change in the price
remain constant of another good
during the testing |Exy|= |(Percentage in Determinants
period. Quantity Demanded of good 1. Substitutes (Exy>0) vs
1)(Percentage change in Complements (Exy<0)
Price of good 2)|

Some Applications...
Ed Es Ei Exy
Buying Housing is Gov. Analysis
Excise Taxes 1. Antiques - better than
Limited, Inelastic Automobiles
supply, high Should Go-Jek
Higher taxes on (while facing and Grab be
prices recession)
products with allowed to
elastic demand 2. Reproductions merge?
will bring in less Unlimited,
Elastic supply, They are strong
tax revenue. lower prices substitutes!

3. Gold highly Block the merger

inelastic supply, because
shifting demand competition will
be hurt.

PKN STAN Matkul-Mikroeconomics

Kelas 3-8
Kelompok 6