APPLIED ECONOMICS

Market Pricing
Module 4
When we were in lower grade level, we
encountered the word “elastic, usually in our
science subject. We define it as being flexible
or having the ability to be stretched but can go
back to its original shape or size like a rubber
band.
In economics, the terms elasticity is used to
define the change in behavior of the sellers or
buyers because of the change in price and/or
other determinants of supply and demand. It
measures how the sellers or buyers respond to
the changes in determinants mainly the price.
 Elasticity of Demand and Supply

The degree of elasticity of different

products vary for several reasons. For
the customers and suppliers, the
common determinant of the quantity
demanded and supplied is the price.
 Price Elasticity of Demand and Supply

Price Elasticity of Demand

Price elasticity of demand measures the
change in demand in response to the
change in price. For example, the price
of pork increases by 5 % the price
elasticity will be determined by
identifying the percentage of decrease
or increase in demand due to the change
in price.
 Types of Elasticity
1. Elastic
2. Inelastic
3. Unitary
4. Perfectly elastic
5. Perfectly inelastic
 Elastic
 The percentage change in quantity
demanded is greater than the
percentage change in price. It has
more than 1 elasticity coefficient. It
means that if the price will increase
there is a greater possibility that the
consumer will not buy the product or
may decrease the quantity of the
product to buy.
 Inelastic
 The percentage change in quantity
demanded is lesser than the percentage
change in price. It has less than 1 elasticity
coefficient. It means that the decision of
the consumer to buy the product is not
that affected by the increase or decrease
in price. The seller cannot assume that the
consumer will buy more if they will
decrease the price since the change in
quantity demanded is only minimal.
 Unitary
 The percentage change in price is
equal to the percentage change in
quantity demanded. The elasticity
coefficient is 1. It means that if the
price increase by 1 % the demand will
decrease by 1 % also and vice versa
 Perfectly elastic

 When at the same price, the change

of demand is infinite. It means that a
small change in price may cause a
huge change in demand.
 Perfectly inelastic
 When there is no change in demand
despite of the changes in price.
Elasticity coefficient is zero. It
means that the demand is not
affected by price at all. The demand
will still be the same even if there is
an increase or decrease in price.
THANK YOU….