INTRODUCTION TO

ELASTICITY
OVERVIEW
Price
Definition of Elasticity of Categories of Midpoint
Elasticity Demand and Elasticity Method
Supply
 ELASTICITY
Elasticity is an economics concept that
measures responsivenes of one variable
to changes in another variable.

Economists utilize elasticity to calculate

how variables affect each other.
A represent the quantity demanded and
B represent the price or income
3 Categories
of ELASTICITY
ELASTIC Demand or Supply
Is one in which the elasticity is
greater than one, indicating a high
responsiveness to changes in price.

Example: Would be a product that's

easy to make and distribute, such as
luxury goods, fast food, and furniture
when the prices of these items go up,
consumers may delay.
INELASTIC Demand
When changes in prices of a certain
good or services occur, the quantity
demanded does not change at all
and remains the same.

Examples: Gasoline, necessary foods,

and prescription drugs etc. - when
price changes on these items, demand
doesn’t fluctuate at much because
these items are necessity in everyday
lives of most consumers.
UNITARY Elasticity
Indicate proportional
responsiveness of either demand or
supply.
Percentage change in demand is
exactly equal to the percentage
change in price. It is a fundamental
used in economics to explain the
responsiveness of variables to each
other. Thus, as the prices increase,
the quantity of goods decreases
and vice versa but in the same
proportion.
Elastic, Inelastic, and Unitary:
Three Categories of Elasticity
PRICE ELASICITY
OF DEMAND AND
PRICE ELASTICITY
OF SUPPLY
PRICE ELASTICITY

The ratio between the percentage

change in the quantity demanded
(Qd) or supplied (Qs)and the
corresponding percent change in
price.
PRICE ELASTICITY OF DEMAND

The percentage change in the

quantity demanded of a good or
service divided by the percentage
change in the price.
CALCULATING PRICE ELASTICITY OF DEMAND

We calculate the price

elasticity of demand as the
percentage change in quantity
divided by the percentage
change in price.

Price Elasticity % change in quantity

of Demand =
% change in price

Figure 5.2
Calculating the Price Elasticity of Demand
PRICE ELASTICITY OF SUPPLY
The percentage change in quantity supplied
divided by the percentage change in price.

Range of Values
PES > 1: Supply is elastic
PES < 1: Supply is inelastic
PES = 0: Supply is perfect inelastic
PES (infinity): Supply is perfect elastic
Factors directly impact
the elasticity of supply
Production Lag
Stocks
Spare Capacity
Alternative substitute
Time

Equation:
% Changes in QS

% Changes in Price
CONCLUSION
economics concept that measures responsiveness of one variable
Elasticity to changes in another variable

% change in quantity
Midpoint method % change in price

Elastic >1 highly responsive to change in price

Categories of
Elasticity Inelastic <1 low responsiveness to change in price

Unitary =0 proportional responsiveness