The Concept of Elasticity: Rhyan Mike R. Bacaro

The Concept of
Elasticity
Rhyan Mike R. Bacaro
Objectives
Student Learning
a. Define the concept of Elasticity and
Outcomes: Production Cost.
Students will be b. Identify the basic forms of

Elasticity.
reintegrated to the basic
concepts of economics c. Discuss the applicability of the
concept in some economic activities.
“Si Marites og si Lucia”
Lucia: Ayoo, Marites tag-pila imong talong?

Marites: Tag dyes ang bugkos Lucia.
Lucia: Papalita kog balig tulo.
(Sa Misunod nga higayon)

Lucia: Papalita kog talong balig traynta.
Marites: Oh niay duha ka bugkos kay tag kinse na
akoang talong.
(Sa ikatulo’ng adlaw)

Lucia: Marites tagpila napud imong talong?
Marites: Tagbaynte ang bugkos.
Lucia: Kamahal oiii, be papalita nalang kog isa ka
bugkos.
The Concept of Elasticity
Elasticity measures the
responsiveness of one variable to a
certain change of other variable
Demand and supply are not static in a

competitive market. Both, responds to
changes in price and other factors.
The degree to which either the demand and supply

curve reacts to a change in price is referred to as
elasticity.
Basic forms of Elasticity
1. Price Elasticity of Demand
Is the degree of responsiveness of a quantity Price Elasticity Interpretation

of Demand
demanded to a change in price.
=1 Unitary Elastic
Economists defined this mathematically as:
>1 Elastic
<1 Inelastic
The importance of this form of Elasticity.

 It suggest the best pricing decision.
TR= P x Q
Where: TR is the total revenue;

P is the price;
Q is quan tity;
Importance of Total Revenue in Pricing Decisions
Example.
Cecilia sells bangus for Php100 and her Qd= 500. When she decides to sell it at Php125, her
Qd2 becomes 450. Should Cecilia sell her bangus at Php100 or Php125? Is Qd elastic or
inelastic?
Base from the
solution, we can
conclude that when
Cecilia increases her
price while demand is
inelastic, she gets
bigger total revenue.
She will then maximize
her profit by raising to
Php 125.
Example 2. Mina sells tuyo for P20 per pack and gets 200 packs quantity demanded.
However if she lower her price to P15, quantity demanded doubles. Is the demand for tuyo
elastic or inelastic? At what price will Mina get a bigger revenue?
Example 3. If Theresa sells tilapia for P80 per kilo, the demand for it is 200. When she
raises it by P20. The quantity demanded diminishes to 100. At what price will Theresa
maximize her profit? Is the demand elastic or inelastic?
Example 4. Mike sells Balut at P20 each, and he gets his quantity demanded of 100. When
he decided to lower the price by 10, the quantity demanded doubled.
2. Income Elasticity of Demand
 Is the degree of responsiveness of a percentage change in quantity

demanded with a percentage change in income.
 It is calculated base on the following formula:

 When the result of the income elasticity is positive or greater than 1, the good is a
normal good. This happens when an increase e in a consumer’s income has caused
a substantial increase in demand for the product.
 When the resulting income elasticity is negative or less than 1, the good is said to
be inferior: A good becomes inferior when an increase income brings about a
decrease in demand for product
Example.
Chris earns a monthly income of Php5,000 and she consumes Php1,000 worth of
chicken per month, the price of chicken is Php100 per kilo. When her income
increased by Php2,500/month she started to consume Php1,500 worth of chicken
meat a month. Is Chris’s demand for chicken meat normal or inferior?
3. Cross Elasticity of Demand
 Is the degree of responsiveness of a percentage change in quantity of a good with
a percentage change in price of other goods.
 A positive cross elasticity indicates that a good is a substitute of the other while a
negative cross elasticity means the goods are complementing each other.
 In economics, the percentage change in demand for the first good in response to
the percentage change in price of the second good is expressed in this
mathematical formula:
note: upper portion of the fraction(quantity) refers to product X, and the

lower portion (price) refers to product Y
Example.
Good Qd1 Qd2 P1 P2
X (Coffee) 15 10 35 40
Y (Sugar) 20 14 15 20
4. Price Elasticity of Supply
 Refers to the degree of responsiveness of quantity supplied to a change in

price.
Price Elasticity of Interpretation
Demand
=1 Unitary Elastic
>1 Elastic
<1 Inelastic
4. Price Elasticity of Supply
Example.
The old price of Sardines is Php10. At Php10, a producer can supply 100
cans of them. When selling price changes to Php12, the producers was able to
increase its production to 120 units. Solve for the price elasticity of supply.
We can say that the supply of

Sardines is unitary elastic
Reference.
Manapat, C. et.al. (2010). Economics, Taxation, and Agrarian

Reform. C and E Publishing, Inc. page 25-35, 63-64
Gabay, BK. et.al. (2007). Economics: Its Concepts and Principles. REX
Book Store.

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The Concept of

Students will be b. Identify the basic forms of

Lucia: Ayoo, Marites tag-pila imong talong?

(Sa Misunod nga higayon)

(Sa ikatulo’ng adlaw)

Demand and supply are not static in a

The degree to which either the demand and supply

Is the degree of responsiveness of a quantity Price Elasticity Interpretation

The importance of this form of Elasticity.

Where: TR is the total revenue;

Importance of Total Revenue in Pricing Decisions

 Is the degree of responsiveness of a percentage change in quantity

 It is calculated base on the following formula:

note: upper portion of the fraction(quantity) refers to product X, and the

 Refers to the degree of responsiveness of quantity supplied to a change in

We can say that the supply of

Manapat, C. et.al. (2010). Economics, Taxation, and Agrarian

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