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MODULE 3 – ECON 221

CONCEPT OF ELASTICITY

The concept of elasticity is very important in making everyday decisions not only
for consumers but for producers that play a significant role in our economy. Say
for instance a firm that is contemplating a price hike will want to know how
consumers will respond. If they remain highly loyal and continue to buy, the firm’s
revenue and profit will rise, if consumers transfer to other sellers or other products,
revenue and profit will tumble. The responsiveness or sensitivity of consumers to
a price change is measured by the product’s price elasticity of demand or supply
which will be focused on the discussion of this module.

Learning Outcomes: at the end of module 3, you will be able to:

1. describe the concept of elasticity of demand and supply;
2. calculate elasticity values of demand and supply given changes in
price and quantity including the different degrees of elasticity; and
3. apply the concept of elasticity to various economic situations.

Learning Activity 3.1: ELICIT

Recall an instance where you purchased/acquired a certain good/product even if the price is
high AND an instance where the price of a certain good is low but still, you did not buy that
good/particular product. Share the experience and the reasons for that decisions.

Learning Activity 3.2: EXPLAIN

Watch the pre-recorded video as I discussed the topic elasticity.

Learning Activity 3.3: ELABORATE. Read, analyze and solve the problem by applying the
formula discussed in the video and share your interpretations. Show your solutions. 10 points each.

1. The quantity of peanuts supplied increased from 40 tons/week to 60 tons/week when the price
of peanuts increased from ₱4,000/ton to ₱5,000/ton. Solve to determine the price elasticity of
supply for peanuts over this price range.
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2. A taho vendor wanted to increase his price from ₱10 to ₱12 per glass. Recently, he was able to
sell 150 glasses per day. He estimated that his action to increase will affect the buying behavior
of his customers to 130 glasses. Find out how sensitive are the customers and if the income of
the taho vendor will increase or decrease (revenue analysis – just multiply the quantity to price).

Learning Activity 3.4: EVALUATE

Analyze each situation and solve for the elasticity coefficient to determine how sensitive are the
consumers or producers on the price changes. Input your answer on the designated column. 30 pts.

Situation Elasticity Reactions of Explain the possible

Coefficient the consumers/ reason on the reaction of
producers the consumers/
(1 point) (1 point) producers
(3 points)
Example: There is an 18% increase Since it is summer,
demand of water during summer 0.69 Inelastic people would likely
even the price increased by 26% consume more water
regardless of its price
1. The price of alcohol increased by
7% but the demand still
increased by 5% due to the
pandemic

2. Petroleum products increased its

price by 8%, the demand
decreases to 12%

3. The demand for motorcycles

increased by 27% because the
price decreased by 15%

4. Recently, the price of electricity

increased by 18%. Automatically,
the demand decreased by 14%

5. The supply of face mask is

reduced by 30% because the
price decreased up to 40%

Southern Christian College Econ 221 – Basic Microeconomics

 MODULE 3 – Concept of Elasticity 3

6. The price of chicken decreased by

10%. There is only 15% supply

Big Ideas…
✓ The sensitivity and responsiveness of both buyers and sellers to change is referred to as
elasticity.
✓ Knowledge of the concept of elasticity is useful to both buyers and sellers. The concept
emphasized that demand and supply may be affected by changes in price, income,
substitutes and complementary products.
✓ The categories of both demand and supply elasticity are elastic, inelastic and unitary.
When elasticity coefficient is greater than 1, then it is elastic, inelastic if it is less than 1
and unitary if it is equal to 1.
✓ The sensitivity and responsiveness of consumers to price changes will help sellers to
make decisions in increasing or decreasing the price to earn a reasonable revenue.

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Freedom space…
Feel free to write here your evaluation, suggestion/s on how we can improve your learning.

Bible verse for self-reflection:

Proverbs 3:9-10
Honor the Lord from your wealth and from the first of all
your produce; so your barns will be filled with plenty and
your vats will overflow with new wine.

Southern Christian College Econ 221 – Basic Microeconomics