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ObjectivesAt the end of the lesson, the students should be able to: define price elasticity of demand and price
elasticity of supply
identify the different types and characteristics of demand elasticity
identify the determinants of price elasticity of supply and demand
ObjectivesAt the end of the lesson, the students should be able to:
solve for the price elasticity of demand and price elasticity of supply
PRICE ELASTICITY OF
DEMAND AND SUPPLY
Law of Demand
price elasticity of demand
Measures the responsiveness of
demand to changes in price
price elasticity of demand
Price elasticity of demand = % change in quantity demanded
% change in price
ED = % Q % P
Q2 – Q1 ED = Q
P2 – P1 P
price elasticity of demand
elasticity ratio of percentage
Q = Q2 – Q1 P = P2 – P1
% Q = Q2 – Q1 % P= P2 – P1
Q P
Q = Q2 + Q1 P = P2 + P1 2 2
Characteristics
value type of demand Response to change
0
Perfectly inelastic demand
QD remains the same
0-1 Inelastic demand Minimal change in QD
1 Unitary elastic Change in price = change in demand
Characteristics
value type of demand Response to change
1+ Elastic demand Bigger change in QD
infinity
Perfectly elastic Any change in price would lead to extremely big change in QD
type of demand
Elastic
Inelastic
Unitary elastic
shape of demand according to elasticity
relatively flat
relatively steep
shape of demand according to elasticity
extremely flat
extremely steep
determinantsavailability of substitutes
importance of the item in the budget
time frame
Demand is more elastic when there are more substitutes
Demand is inelastic when the product is a more significant portion of the consumer’s budget
Demand can be more elastic over time
law of supply
price elasticity of supply
Measures the responsiveness of supply to the changes in price
ES = % S % P
ES = Q2 – Q1 Q
P2 – P1 P
price elasticity of supply
S = S2 – S1 P= P2 –P1
% S = Q2 – Q1 % P = P2 – P1 Q P
Q = Q2 + Q1 P = P2 + P1
2 2
price elasticity of supply
Characteristics:
Value Type of supply Response to change in price
0 Perfectly inelastic supply
QS remains the same
0-1 Inelastic supply Minimal change in QS 1 Unitary supply Change in price =QS
Characteristics: Value Type of supply Response to change in price
1 + Elastic supply Bigger change in QS Infinity Perfectly
elastic supply Any change in price would lead to extremely big change in QS
determinants
Manufactured goods
Agricultural goods
Seatwork
Compute for the price elasticity of demand:
DEMAND FOR good Y
A: Q1= 160 ; P1 =110B: Q2= 240 ; P2 =90
quiz: 1.Compute for the price elasticity of demand:
Q1= 200; P1= 11Q2= 100; P2= 15
2.Compute for the price elasticity of supply:
Q1= 75; P1= 30Q2= 175; P2= 31