ELASTICITY OF DEMAND AND SUPPLY

Based on the law of demand, buyers are willing and able to purchase more goods and services at the
lower prices than at higher prices. These are the normal reactions of buyers. However, such reaction are
depending on the importance and availability of the goods and services. These varying reactions are
know as demand elasticities.

In the case of the producers or sellers, they have also their reactions to price changes. Clearly, they tend
to sell more goods and services when prices are higher. Their reactions also depending on their ability to
produce in given time. For instance, they cannot take advantage of higher prices if they cannot produce
the goods and services. Such varying reactions of producers are know as supply elasticities.

ELASTICITY OF DEMAND

Demand elasticity

> refers to the reaction or response of the buyers to changes in price of goods and services

FIVE (5) TYPES OF ELASTICITY OF DEMAND:

1. Elastic Demand

> change in price results to a greater change in quantity demanded

2. Inelastic Demand

> change in price results to a lesser change in quantity demanded

3. Unitary Demand

> change in price results to an equal change in quality demanded

4. Perfectly Elastic Demand

> without change in price, there is an infinite change in quantity demanded

5. Perfectly Inelastic Demand

> change in price creates no change in quantity demanded

DETERMINANTS OF DEMAND ELASTICITY

Number of Goods Substitutes

> demand is elastic for a product with many substitution

Price Increase in Proportion to Income

> if the price increase has very little effect on the income or budget of the buyers, demand is inelastic
Importance of the Product to the Consumers

> luxury goods are not very important to many Filipinos. So, there are elastic

ECONOMIC SIGNIFICANCE OF DEMAND ELASTICITY

The concept of the elasticity of demand is not just theoretical exercise which has no practical
applications in business and economic policies

FIVE (5) TYPES OF ELASTICITY OF SUPPLY:

1. Elastic Supply

> change in price results to a greater changes in quantity supplied

2. Inelastic Supply

> change in price results to a lesser change in quantity supplied

3. Unitary Supply

> change in price results to an equal change in quantity supplied