MANDAUE CITY COLLEGE

BASIC MICROECONOMICS

PINO, CHERLY JOY

GACANG, JESSAKLIER

LOFRANCO, MARICRIS

CATARMAN, SHENTAL LAYMOR

SERDENIA, DIANE MARIE

QUIMCO, JULIEN

ESPERANZA, IRIS

MS. BOYONAS, BABY CRIS

INSTRUCTOR

ELASTICITY
I. OBJECTIVES:

• To understand how supply and demand change when a products price change

• To understand how much change in price will affect market behaviors

• To understand the relationship between the price elasticity of demand and total

revenues

• To discuss various types of elasticities of demand

• To understand the relevance and application of elasticities of demand

 II. SUMMARY

Elasticity is a measure of variables sensitivity to a change in other variables. Most

commonly this sensitivity is the change in quantity demanded relative to changes in

other factors such as price. Price elasticity is a degree to which individuals, consumers,

or producers change their demand or the amount supplied in response to price or

income changes. Elasticity also is an economic measure of how sensitive one economic

factor is to change in another. Additionally, elastic is an economic term that measures

responsiveness. One of the examples is, changes in supply or demand to the change in

price or changes in demand to changes in income.

Price elasticity of demand is measured as the percentage change in quantity demanded

divided by the percentage change in price. Price elasticity of supply is measured as the

percentage change in quantity supplied divided by the percentage change in price. One

of the examples is if 10 percent increase in price causes consumers to cut their

willingness to buy by 12 percent and producers increase their quantity supplied by 6

percent, then the elasticity of demand is 12/10 = 1.2 and the elasticity of supply is 6/10

= 0.6. So, when the elasticity numbers exceed one, we can say that the demand and

supply is elastic. And if the numbers are less than one, we can say that demand or

supply is inelastic.

There are 5 types of Price Elasticity of Demand which are elastic demand, inelastic

demand, unitary elastic demand, perfectly elastic demand and perfectly inelastic

demand. When we say elastic demand, it is the change in quantity demanded is greater

than the price. Inelastic demand is a change in quantity demanded is less than the

price. Unitary demand is, it is a change in quantity demanded is equal to change in

price. Perfectly elastic demand is a change in price results to an infinite change in

demand. And lastly, the perfectly inelastic demand is any change is price will not show

any changes in demand. Also, the Price Elasticity of Supply has also 5 types which are,

the elastic supply, inelastic supply, unitary elastic supply, perfectly elastic supply and

perfectly inelastic supply. Elastic supply is computed as the percentage change in

quantity supplied divided by the percentage in price. Inelastic supply is the goods where

the level of supply will not significantly change as price changes. Unitary elastic supply

is a supply that is perfectly responsive to price changes. Perfectly elastic supply is any

change in price will result in infinite amount of change in quantity. Lastly, perfectly

inelastic supply is, there’s no change in quantity supplied when the price changes.
III. QUESTIONS AND ANSWERS

1. What are the five types of Price Elasticity of Supply, and how does each type

respond to changes in price?

Answer: The five types are: Elastic Supply: Percentage change in quantity

supplied divided by the percentage change in price. Inelastic Supply: The level of

supply does not significantly change as price changes. Unitary Elastic Supply:

Supply perfectly responsive to price changes. Perfectly Elastic Supply: Any

change in price results in an infinite change in quantity. Perfectly Inelastic

Supply: No change in quantity supplied when the price changes.

2. What does elasticity in economics measure, and why is it considered an

important concept?

Answer: Answer: Elasticity is an economic concept used to measure the change

in the aggregate quantity demanded of a good or service in relation to price

movements of that good or service. A product is considered to be elastic if the

quantity demand of the product changes more than proportionally when its price

increases or decreases.

3. What Is Meant by Elasticity in Economics?

Answer: Elasticity refers to the measure of the responsiveness of quantity

demanded or quantity supplied to one of its determinants. Goods that are elastic

see their demand respond rapidly to changes in factors like price or supply.

Inelastic goods, on the other hand, retain their demand even when prices rise

sharply (e.g., gasoline or food).

4. Is price elasticity important in the business?

Answer: Understanding whether or not the goods or services of a business are

elastic is integral to the success of the company. Companies with high elasticity

ultimately compete with other businesses on price and are required to have a

high volume of sales transactions to remain solvent. Firms that are inelastic, on

the other hand, have goods and services that are must-haves and enjoy the

luxury of setting higher prices. Beyond prices, the elasticity of a good or service

directly affects the customer retention rates of a company. Businesses often

strive to sell goods or services that have inelastic demand; doing so means that

customers will remain loyal and continue to purchase the good or service even in

the face of a price increase

5. What does elasticity measure in economics, and how is it commonly applied,

especially concerning changes in price and income?

Answer: Elasticity in economics is a measure of a variable's sensitivity to

changes in other variables. It most commonly refers to the change in quantity

demanded relative to changes in factors such as price. Price elasticity specifically

gauges the extent to which individuals, consumers, or producers adjust their

demand or supply in response to changes in price or income. It serves as an

economic measure of how responsive one economic factor is to changes in

another.
REACTIONS:

Elasticity, in economics, is a measure of how much buyers and sellers respond to

changes in market conditions. It can have several positive impacts: 1. Price Elasticity of

Demand: This helps businesses decide on their pricing strategy. If demand is elastic, a

small change in price can lead to a significant change in the quantity demanded. This

can help businesses increase their total revenue by adjusting prices. 2. Income

Elasticity of Demand: These measures how the quantity demanded changes with a

consumer's income. It helps businesses understand the market demand for their goods

as income levels change, which is particularly useful in times of economic growth or

recession. 3. Cross Elasticity of Demand: These measures how the quantity demanded

of one good change when the price of another good changes. It helps businesses

understand the relationships between different products, which can be useful for

product bundling or complementary product strategies. 4. Price Elasticity of Supply: This

helps businesses understand how much they can increase production when prices

increase, which can be useful for planning and resource allocation. In a nutshell,

elasticity provides valuable information that can help businesses make strategic

decisions about pricing, production, and marketing. It also helps policymakers

understand how taxes and subsidies can affect supply and demand, and how income

changes affect consumption.

While elasticity can have many positive impacts, it can also have some negative

implications: 1. Price Elasticity of Demand: If demand for a product is highly elastic, it

means that consumers are very sensitive to price changes. This can make it difficult for

businesses to increase prices without losing customers. It can also lead to volatile sales

and revenues if prices fluctuate frequently. 2. Income Elasticity of Demand: If demand

for a product is highly income elastic, it means that demand will fall significantly if

consumers' incomes decrease. This can make businesses vulnerable during economic

downturns. 3. Cross Elasticity of Demand: If two goods are close substitutes, a small

price increase in one can led to a large decrease in demand as consumers switch to the

other. This can make it difficult for businesses to maintain market share. 4. Price

Elasticity of Supply: If supply is highly elastic, it means that producers can quickly

increase production when prices rise. However, this can lead to overproduction and

falling prices if demand doesn't keep up. In general, while elasticity provides valuable

information, it also highlights the risks and challenges that businesses and policymakers

face in managing supply and demand. It's a delicate balance!

REFERENCES:

https://www.investopedia.com/ask/answers/012615/what-types-consumer-goods-

demonstrate-price-elasticity-demand.asp

https://www.investopedia.com/terms/e/elasticity.asp

https://www.investopedia.com/terms/e/elasticity.asp#:~:text=Elasticity%20is%20an%20

economic%20concept,its%20price%20increases%20or%20decreases

https://www.investopedia.com/terms/e/elasticity.aspom

https://www.studysmarter.co.uk/explanations/microeconomics/supply-and-

demand/elasticity-of-supply/

https://corporatefinanceinstitute.com/resources/economics/unit-elastic/