Chapter 4: Price Determination (Additional Notes)

 Elasticity means responsiveness or reaction

 Demand elasticity is a measure of the degree of responsiveness of the quantity demanded of
a product to a given change in one of the independent variables that affect the demand for that
product.
 Price elasticity of demand is the responsiveness of consumers’ demand to a change in the
price of the good sold.
 Income elasticity of demand is the responsiveness of consumers’ demand to a change in
their income.
 Cross price elasticity of demand is the responsiveness of demand for a certain good, in
relation to changes in price of other related goods.
 The demand for a good is inelastic when the change in quantity demanded is less than the
change in price.
 The demand for a good is elastic if the change in quantity demanded is greater than the
change in price.
 The demand for a good is unitary if the change in quantity demanded is equal to the change
in price.
 The demand can be perfectly price inelastic, that is, price changes have no effect at all on
the quantity demanded.
 The demand can be perfectly price elastic, that is, any amount will be demanded at the
prevailing price.
 Supply elasticity refers to the reaction or response of sellers or producers to price changes of
goods sold.
 The supply for a good is inelastic when the change in quantity supplied is less than the
change in price.
 The supply for a good is elastic if the change in quantity supplied is greater than the change
in price.
 The supply for a good is unitary if the change quantity supplied is equal to the change in
price.
 The supply can be perfectly price inelastic, that is, price changes have no effect at all on
quantity supplied.
 The supply can be perfectly price elastic, that is, any good will be supplied at the prevailing
price.

How to get the percentage change using the Midpoint Method:

Example (price change):

Original price = 2.85 Php
New price = 3.15 Php

𝑃2 − 𝑃1
%∆P = 𝑥 100
(𝑃2 + 𝑃1 )/2

3.15 − 2.85
= 𝑥 100
3.00

= 10 %