ELASTICITIES OF DEMAND

AND SUPPLY
ELASTICITY
Percentage change in one variable
resulting from 1 percent increase in
another
Demand Elasticity
The degree of responsiveness of
quantity demanded to a change in the
price
It is derived by dividing the percentage
change in the quantity demanded by the
percentage change in price
Demand Elasticity
It follows the formula:
percentage change in Qd
Demand Elasticity = percentage change
in ₱
Ed= %∆Q
%∆ ₱
 Demand Elasticity
Let’s have a sample computation of demand
elasticity:
Given:
Q1 = 100 P1 = 60
Q2 = 50 P2 = 80
 Five Degrees of Elasticity of Demand
Perfectly Elastic - (infinity)
Elastic - (>1)
Unitary Elastic - ( 1 )
Inelastic - (<1 but >0)
Perfectly Inelastic - ( 0 )
 Perfect Elastic Demand
The demand curve is a horizontal line
It means that the demand for the product
varies at the same price
Quantity changes while the price does not
Consumers are willing to buy any amount
of the product as long as the price does not
increase
 Elastic Demand
Indicates that consumers react strongly to a change
in the price of a commodity
With a slight decrease or increase in the price,
consumers alter their demand significantly
The percentage change quantity demanded is
greater than the percentage change in price
If a firm reduced the price of its product, and its
competitors did not, that firm would attract more
consumers
 Unitary Elastic Demand
Indicates that the price of a product and the
corresponding demand for it changed by the same
percentage
A network of schools belonging to one system,
for instance, might have anticipated that if the
price of a particular brand of computer would go
down by 20%, it would also increase its
acquisition by as much percentage
 Inelastic Demand
It shows that the percentage change in the
quantity demanded is less than the percentage
change in the price
This is true to the demand for products that
rarely have close substitutes or do not have a
big market.
 Perfect Inelastic Demand
Demand curve is a vertical line
It shows that the quantity demanded for a
product does not change regardless of the
movement in the price
It assumes that the consumers do not care about
the price of the product. Possibly, they have a
fixed demand for the product and they will buy it
regardless of the price
 Supply Elasticity
Measures the impact of a price change on
the supply of a product.
It is computed by dividing the percentage
change in the quantity supplied by the
percentage change in the price.
Supply Elasticity
It follows the formula:
percentage change in Qd
Supply Elasticity = percentage change in
₱
Es= %∆Q
%∆ ₱
Supply Elasticity
Let’s have a sample computation of supply elasticity:
Given:
Q1 = 150 P1 = 200
Q2 = 400 P2 = 250
Determinants of Supply
The capacity of suppliers to react to price
changes is determined primarily by two factors:
1) The availability and price of resources
2) The nature of the product
Five Degrees of Elasticity of Supply
Perfectly Elastic - (infinity)
Elastic - (>1)
Unitary Elastic - ( 1 )
Inelastic - (<1 but >0)
Perfectly Inelastic - ( 0 )
 Perfectly Elastic Supply
The quantity supplied increases or decreases even
though the price is constant.
All suppliers are price takers for they may increase
or decrease their supply based on the prevailing
market price.
No supplier is powerful enough to manipulate the
price in its favor.
It exists only if the suppliers in the market engage
 Elastic Supply
The percentage change in quantity
supplied is greater than the percentage
change in price.
Products that less costly and quick to
produce tend to have elastic supply.
It is easy to increase their supply to take
advantage of a favorable price
 Unitary Supply
Percentage change in quantity supplied is
equal to the percentage change in price.
It may likely exist in an industry where
only one producer or seller dominates the
market
The producer can dictate the price and the
supply
 Inelastic Supply
Percentage change in quantity supplied is less
than the percentage change in price
The elasticity quotient is greater than zero but
less than one
Examples of this is the supply of diamond and
gold
 Perfectly Inelastic Supply
Happens when only the price changes and
the quantity supplied is constant
It assumes that no matter what happens to
the price of the product, the quantity
supplied will not increase or decrease
The supply of land is the closest example.