Chapter 4 Elasticity of Demand and Supply

1. What is Elasticity?

The rate of change of the quantity demanded or quantity supplied due to a change.

2. What is Price Elasticity of Demand?

A measure of the responsiveness of the quantity demand for a good to a change in its price, with
the assumption of ceteris paribus.

3. Degrees of Price Elasticity of Demand VS Degrees of Price Elasticity of Supply

Degrees of Price Elasticity of Degrees of Price Elasticity of

Demand Supply
Perfectly inelastic Any change in price will not affect the
quantity demanded of the good.
Inelastic The % change in quantity demanded is
smaller than the % change in the price
of the good
Unitary elastic The % change in quantity demanded is
equal to the % change in the price of
the good
Elastic The % change in quantity demanded is
larger than the % change in the price of
the good
Perfectly elastic At a price higher than OP0, the good
will not be in demand.

4. Relationship between Price Elasticity of Demand and Total Revenue?

Elastic Demand
Inelastic Demand
Unitary Elastic Demand
Perfectly Elastic Demand
Perfectly Inelastic Demand

5. Determinants of Price Elasticity of Demand are?

a. Availability of Substitutes
b. Proportion of Expense from Income
c. Number of Uses
d. Importance
e. Time Period
f. Consumer Habit
g. Branding
6. Other forms of Elasticity of Demand
a. Income Elasticity of Demand
b. Cross Elasticity of Demand
7. What is Price Elasticity of Supply?

8. Degrees of Price Elasticity of Supply. There are five types of them:

a. Perfectly inelastic
b. Inelastic
c. Unitary elastic
d. Elastic
e. Perfectly elastic

9. Determinants of Price Elasticity of Demand are?

a. Production Costs
b. Availability and Mobility of Factors of Production
c. Time Period
d. Number of Firms in an Industry
e. Production Time