EL ASTICIT Y OF

DEMAND AND
SUPPLY
 ELASTICITY

• use to determine how changes in

product demand and supply related to
changes in consumers income or the
producer price.
 ELASTIC DEMAND

•A slight change in the price will lead to

a drastic change in the demand for the
product.
 COMPLEMENT GOODS

•Two goods for which an increase in the

price of one leads to a decrease in the
demand for the other.
 CROSS-PRICE ELASTICITY OF
DEMAND
• A measure of how much the quantity demanded of
one good response to a change in the price of
another good, computed as the percentage change
in quantity demanded of the first good divided by
the percentage change in the price of the second
good.
 INFERIOR GOODS

•A goods for which, other things equal, an

increase in income leads to a decrease in
demand.
 PRICE ELASTICITY OF SUPPLY

•A measure of how much the quantity

supplied of a good response to a change in
the price of the good, computed as the
percentage change in quantity supplied
divided by the percentage change in price.
 SUBSTITUTE GOODS

•Two goods which increase in the price

of one leads to an increase in the
demand for the other.
 SUPERIOR GOODS

• Are luxury goods that are always expensive and often are relatively scarce or harder to come
by. These are goods that are something very pleasant but not really needed in life.
 ELASTICITY OF DEMAND
• Ed =percentage change in quantity demanded
• percentage change in price
Where: percentage change in quantity demanded= Q2-Q1
Q1
percentage change in price =P2-P1
P1
THEREFORE: Q2-Q1
Q1
Ed P2-P1
P1
Where: Ed-price elasticity of demand
Q1-original quantity demanded
Q2- new quantity demanded
P1- original price
P2- new price
 INCOME ELASTICITY OF DEMAND
•
• Ey percentage change in quantity demanded
• percentage change in in come
• ey= Q2-Q1
• Q1
• Y2-Y1
• Y1
• LET: Q2- 170 Y2- 9000
• Q1-140 Y1-7000
• SOLUTION
• ANSWER: 20 PTS
 CROSS PRICE ELASTICITY

• Ec= percentage change in quantity demanded of good A

• percentage change in price of good B
• Q2A-Q1A
• Q1A
• ec=P2B-P1B
• P1B
• GIVEN: Q1A= 400 P1B= 90
• Q2A=300 P2B-=110
• COPY AND ANSWER 20PTS
 P1
THEREFORE: Q2-Q1
Q1
Ed P2-P1
P1
If Q2= 40 P2=90
Q1=70 P1= 150
COPY AND ANSWER 20PTS