ELASTICITY – is the measure of the responsiveness of on

variable to a certain change on another variable.

TYPES OF ELASTICITY

Elastic – the percentage change in variable A is greater than

the percentage change in variable B.

Coefficient of elasticity is greater than one (1)

ℇ>1
TYPES OF ELASTICITY

Inelastic - the percentage change in variable

A is less than the percentage change in
variable B.

Coefficient of elasticity is less than

one (1)

ℇ<1
TYPES OF ELASTICITY

Unitary elasticity - the percentage change in

variable A is equal to the percentage
change in variable B.

Coefficient of elasticity is EQUAL to

one (1)

ℇ=1
TYPES OF ELASTICITY

Perfectly Elastic - Any change in variable A

will have an infinite effect on variable
B

Coefficient of elasticity is infinite

ℇ=∞
TYPES OF ELASTICITY

Perfectly Inelastic - Any change in variable A

will have no effect on variable B

Coefficient of elasticity is equal to zero

ℇ =○
 PRICE ELASTICITY

Measures the percentage change in quantity with resp

percentage change in price.

PRICE ELASTICITY OF DEMAND

Measures the responsiveness of quantity demanded

with respect to its price.
 Arc Elasticity – measures the elasticity at middle
of two points.
Arc Elasticity Formula
Arc Price Elasticity of Demand =
(% Change in Quantity Demanded)/
(% Change in Price)

[Qd2 – Qd1)] / [[Qd2 + Qd1]/2]

Pℇd =
[P2 – P1)] / [[P2 + P1)]/2]
Income Elasticity of demand
measures the rate of response of quantity demand
due to change in consumer’s income.

Yℇd =
[(Q2-Q1)/[(Q1+Q2)/2]
[(Y2-Y1)/[(Y1+Y2)/2]
Normal Good – income elasticity is greater than zero.
or ℇ > 0
Normal Luxury Good – elasticity greater than 1.
ℇ>1
Normal Necessity Good – elasticity less than 1.
ℇ<1
Inferior Good – income elasticity less than zero or
negative.
or ℇ < 0
 Cross Price Elasticity of Demand
measures the rate of response of Qd of one goo
due to the price change in another good.

(Qdx2 – Qdx1) / [(Qdx1 + Qdx2)/2]

CPℇd =
(Py2 – Py1) / [(Py1 + Py2)/2]
Cross Price Elasticity
measures the responsiveness of quantity demand
of a good to a change in the price of another good.

Complementary goods has a cross elasticity

that is negative.

Substitute goods has a cross elasticity that is

positive.