Академический Документы
Профессиональный Документы
Культура Документы
Elasticity
u Elastic
u Measures the responsiveness of one variable to a certain
ELASTICITY and its USES change of another variable
u When the Quantity is sensitive to the change in price
u PED measures the responsive quantity demanded is to u The change in price has relatively little
effect on quantity demanded; the
a price change percentage change in the quantity demanded
u PED = %ΔQd / %ΔP %Δ = (Q 2 -Q 1 /Q 1 ) x 100 or (P2 -P1 /P1 ) x 100
is less than the percentage change in price
u Large changes in price lead to small changes
u Mid-point Method: in quantity demanded.
u The resulting absolute value is less than 1.0
PED = Q2 – Q1
Q1 + Q2 ÷
P2 – P1
P1 + P2
u Products with inelastic demand have very
few substitutes
2 2 u Necessity
1
10/11/18
∞
quantity demanded. 1.0
% Change in Quantity
% Change in Price =
0 <1 1 >1 ∞
1. Price of cigarette goes up from Php6 to 1. Price of McDonald’s Big Mac increased from
Php7. Quantity demanded goes down from $3 to $4, and the quantity demanded
150pcs to 135pcs. decreased from 5000 sandwiches to 3000.
2. Price of books goes down from Php500 to 2. Price of gasoline increased from $3 to $4,
Php300. Quantity demanded goes up from and the quantity demanded decreased
200 books to 380. from 4m gallons to 3.5m gallons.
2
10/11/18
Available Substitutes
u The proportion of income in price changes u The importance or degree of necessity of the goods
u Inelastic if the demand for the product is not affected by u The more essential, the more inelastic
change in income u Change in price does not matter much to consumers
u Elastic if any change in price results to a substantial
effect in consumer income
u The less essential or not important goods tend to be elastic
u Consumers tend to be more responsive to goods that
make up a much larger percentage of income. u Change in price affects the consumers
uAddictive goods tend to have inelastic § The amount of time following a price change.
demands. § The longer the adjustment period, the greater
the consumer’s ability to substitute higher-
uEx. Cigarettes, alcohol, DRUGS
priced goods to lower priced alternatives.
3
10/11/18
Important Notes
Important Notes
4
10/11/18
Practice Problems
5
10/11/18
u The larger the level of stocks, the more uThe longer the production lag, the
price elastic supply is going to be. more inelastic supply is
u The lower the level of stocks, the more
uThe shorter the production lag, the
inelastic supply is going to be.
more elastic
Time Period
6
10/11/18