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    Elasticity

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    James Baryl Garcelo
    Elasticity refers to the proportional change in one variable in response to a proportional change in another. In economics, elasticity describes how quantity changes in response to price changes. Demand elasticity refers to how buyers respond to price changes - elastic demand means quantity changes more than price, while inelastic demand means quantity changes less than price. Supply elasticity refers to how producers respond to price changes - elastic supply means quantity supplied changes more than price, while inelastic supply means quantity changes less than price. The time it takes for producers to respond to price changes determines supply elasticity.

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    Elasticity

    Uploaded by

    James Baryl Garcelo
    396 views27 pages
    Elasticity refers to the proportional change in one variable in response to a proportional change in another. In economics, elasticity describes how quantity changes in response to price changes. Demand elasticity refers to how buyers respond to price changes - elastic demand means quantity changes more than price, while inelastic demand means quantity changes less than price. Supply elasticity refers to how producers respond to price changes - elastic supply means quantity supplied changes more than price, while inelastic supply means quantity changes less than price. The time it takes for producers to respond to price changes determines supply elasticity.

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    Elasticity refers to the proportional change in one variable in response to a proportional change in another. In economics, elasticity describes how quantity changes in response to price changes. Demand elasticity refers to how buyers respond to price changes - elastic demand means quantity changes more than price, while inelastic demand means quantity changes less than price. Supply elasticity refers to how producers respond to price changes - elastic supply means quantity supplied changes more than price, while inelastic supply means quantity changes less than price. The time it takes for producers to respond to price changes determines supply elasticity.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    396 views27 pages

    Elasticity

    Uploaded by

    James Baryl Garcelo
    Elasticity refers to the proportional change in one variable in response to a proportional change in another. In economics, elasticity describes how quantity changes in response to price changes. Demand elasticity refers to how buyers respond to price changes - elastic demand means quantity changes more than price, while inelastic demand means quantity changes less than price. Supply elasticity refers to how producers respond to price changes - elastic supply means quantity supplied changes more than price, while inelastic supply means quantity changes less than price. The time it takes for producers to respond to price changes determines supply elasticity.

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    You are on page 1of 27

    Elasticity

    is a measured responsiveness of one variable to another. As


    used in economics, elasticity is a general concept that describes the
    proportional change in quantity relative to a proportional change in
    the price of the goods, or the proportional change in a shift factor
    such as income or price of another price.
    Elasticity of Demand
    refers to the reaction or response of the buyers to
    changes in price of goods and services.
    1. Elastic demand
    A change in price results to a greater change in quantity
    demanded. Buyers are very sensitive to a price change, they are
    easily discourage to buy the product if there prices increase,
    they are also easily encourage to buy the same products if there
    prices decrease.
    I
    2. nelastic demand
    A change in price results to a lesser change in quantity
    demand. This means the buyers are not sensitive to a price
    change.
    3. Unitary demand
    A change in price results to an equal change in quantity
    demand.
    4. Perfectly elastic demand
    Without change in price, there is an infinite change in
    quantity demand. Such demand applies to a company which sells
    in a purely competitive market.
    5. Perfectly inelastic demand
    A change in price creates no change in quantity demand.
    This is an extreme situation which involves life or death to an
    individual. Regardless of price, the buyer has to buy the product
    like a medicine with no substitute.
    1. Number of good substitutes
    Demand is elastic for product with many good
    substitutes. An increase in the price of such product
    induces buyers to look for good substitute.
    2. Price increase in proportion to income
    If the price increase has very little effect on the
    income or budget of the buyers, demand inelastic.
    I
    3. mportance of the product to the consumers

    Demand is elastic for a product which is not very


    important to the buyers or consumers. Demand is inelastic
    for a product that is important to all consumers.
    Elasticity Formula
    Economic Significance of Demand Elasticity
    A good knowledge of demand elasticity helps the
    businessmen in planning their pricing strategies. Clearly
    the market price of a product influences wages, rents,
    interest, and profits. With the right pricing strategy,
    businessmen may attain the followings:
    1. Achieve target return on the investments.
    2. Maintain or improve a share in the market.
    3. Meet or prevent competition.
    4. Maximize profits.
    Some practical examples of economic significance of
    elasticity of demand.

    1. Wage determination
    2. Farm production guide.
    3. Maximize profits.
    4. Imposition of sales taxes.
    Elasticity of Supply
    refers to the reaction or response of the
    sellers/producers to price change of goods.
    1. Elastic supply
    A change in price results to a greater change in
    quantity supplied. This means producers are very
    responsive to price change.
    I
    2. nelastic s
    upply

    A change in price results to a lesser change in


    quantity supplied. This shows that producers have
    very weak response to price change.
    3. Unitary supply
    A change in price results to an equal change in
    quantity supplied.
    4. Perfectly elastic supply
    Without change in price, there is an infinite (without
    limit) change in quantity supplied.
    5. Perfectly inelastic supply
    A change in price has no effect on quantity supplied.
    These are products which cannot be increased immediately
    or in a short-run period for lack of machinery, raw
    materials, or money.
    D eterminants of Supply Elasticity

    The principal determinant of supply elasticity is the time


    involved in the ability of producers to respond to price changes. If it
    takes a short time to produce the products to take advantage of an
    increase in price, then supply is elastic. On the other hand, if it
    takes a long time to produce the products, the supply is inelastic

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