Economic

Managerial
Assignment
Adnan Gristian Hussayna (23106320002)
Ferry Angga Agustian (23106320013)
Finna Puspita Priasih Kriswanto (23106320015)
Assignment 2
Elasticity
 1. Elastic Demand (Ed > 1)
Very depending on the product,characteristic and also consumer behavior so it means that Elasticity shows how sensitive quantity is to
a change in price. So when the price goes up the quantity decrease a lot,and when the price goes down the quantity demand goes up a
lot.
 1. Elastic Demand (Ed > 1)
So when the demand is elastic it means that these product have many substitutes. The Elastic Demand have elasticity coefficient greater
than one (>1) because a big change in quantity as a result of a small change in price

The percentage change in quantity is greater than the percentage change in price, meaning that if there is a large change in quantity
then it is a response to a change in price.
% ∆ 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 >% ∆ 𝑷𝒓𝒊𝒄𝒆

For example, luxury goods such as gold, when the price of gold rises slightly, demand will fall, vice versa, when the price of gold
falls slightly, demand will increase
 1. Elastic Demand (Ed > 1)
One of the characteristics of elastic demand is that it has a sloping curve
 1. Elastic Demand (Ed > 1)
This animation shows what happens when there’s a big sale or discount, at lower price people buy more
stuff,more shirts,pants,and video games and they are even willing to do stuff like this
1. Elastic Demand (Ed > 1)
1. Elastic Demand (Ed > 1)

Chevrolet Automobiles elastic

because they can be substituted easily by another brands
of cars
1. Elastic Demand (Ed > 1)

Fresh fruit elastic

because they can be substituted easily by processed fruit
 Other Determinants of Elasticity
The elasticity of demand is calculated for many of these factors too. Such as :
1. Consumer Income: A downfall in the consumers’ income results in decreased demand for a product or service. Say, John visited a
cafe four times a month, but he restricted it to two due to a decline in his income.
2. Substitute Goods: The commodities with substitutes experience volatile demand since the consumer can always switch to substitutes
if the product’s price increases. For instance, if butter’s price increases, many will shift to margarine to not affect their budget.
3. Complementary goods : If the price of a good rise, it will also affect the demand for its complementary. For example, if the price of
vegetables becomes high, vegetarian food price will also go up in the restaurants. It will affect the demand of both.
4. Necessity: Even when the price of necessary goods like flour or rice goes up, their demands do not vary much. On the other hand, if
luxury products or services such as royal vacation packages rise in price, their demand falls.
5. Time: Time is another essential factor; many times, a product’s demand doesn’t fall in the short run even after its price rise like
iPhone’s paid applications. However, the customer can plan to change the mobile phone in the long run to avoid the high costs of such
apps.
6. Customer taste and preference: If consumers prefer a product, say a particular brand of clothing, they will keep buying it despite the
price rise.
 2.Inelastic Demand (Ed < 1)
Inelastic demand is when the change in the price of a product or service does not cause a significant change in
its demand in the economy. Simply put, it points to the demand that cannot be influenced by changing prices.
Price can increase or decrease, but the demand remains relatively the same. Inelastic demand is associated with
necessary goods like water, fuel, and electricity; since these are part of daily lives, the level and pattern of their
consumption do not align with the price change.
One of the simple examples is electricity, an increase in its price will not cause people to reduce their
consumption level, and a decrease in its price will not make people use more.

• Inelastic demand in economics refers to the phenomenon of insignificant or no change in demand in reaction
to the change in the price of a product.
• Examples include the demand for necessities like gasoline, electricity, water, and food staples.
• If the price elasticity of demand is greater than one, then it is elastic. Whereas if it is less than one, then it is
inelastic.
• A flatter demand curve is a characteristic of an elastic product. In contrast, a vertical curve indicates a
perfectly inelastic product, and a steeper curve indicates an inelastic product.
 2.Inelastic Demand (Ed < 1)
Inelastic: Suppose a significant price change can cause a small change in the quantity demanded. In that case, the demand
curve will be steeper or almost perpendicular and have a greater slope.
 2.Inelastic Demand (Ed < 1)
The formula for Inelastic Demand is :

The Inelastic Demand have elasticity coefficient less than one (<1)
it implies that the percentage change in price will only cause a small change in the quantity
demanded.
% ∆ 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 <% ∆ 𝑷𝒓𝒊𝒄𝒆
 2.Inelastic Demand (Ed < 1)
For Example when Gasoline price increases, normally, there would not be a corresponding or significant decrease in the
number of miles driven. Because of the inelastic nature of gasoline, the amount of gas people use is not negatively impacted
by its price. Also, the common masses do not have many alternatives to travel to the workplace, transport their children, etc.
Hence, the government must find a solution to reduce the price to ease the situation. In the United States, in March 2022, the
Biden administration announced the plan to release 1 million barrels of oil per day from petroleum reserve to increase the
production of gasoline and a reduction in its price rise caused by Russia’s invasion of Ukraine. It is because the increased
supply of a product can reduce the price. However, the increase in supply and reduction in price depends on the amount of
oil released.

Another example is basic necessities such as rice. For example, when the price of rice rises, the average Indonesian eats once
or three times a day, but when the price of rice falls, it doesn't mean that Indonesians eat 10 times a day.
2.Inelastic Demand (Ed < 1)
3.Unitary Elastic Demand (Ed = 1)
Unitary elastic demand, also known as unitary elasticity, occurs when the percentage change in quantity
demanded is exactly equal to the percentage change in price. Unitary elastic demand is relatively rare and
implies that consumers are adjusting their purchasing in direct proportion to price changes. Unitary elastic
demand refers to the change in demand for goods and services in which the rate of decrease in demand is
equal to the rate of rise in prices. Thus, as the prices increase, the quantity of goods decreases and vice
versa but in the same propertion.

% ∆ 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 =% ∆ 𝑷𝒓𝒊𝒄𝒆
 3.Unitary Elastic Demand (Ed = 1)
So, we can see from the above formula that the sensitivity of the demand is equal to the rate of change in price, which is
termed as unitary elastic.As shown in the example above, the demand curve is not curved but a straight line. In an economy,
whenever the price of goods and services increases, the demand decreases because people buy less of it by switching to
some other substitute products or stopping using the product completely. But the rate of decrease may vary.
In case of unit elastic demand, the quantity of the product demanded decreases at the same rate as the rise in price, as shown
in the graph.
 3. Advantages in Unitary Elasticity
• The manufacturer has a clear vision regarding their turnover – does not impact through price target
• One can sell off any produced goods by decreasing the selling price. This helps clear old stock and
avoiding wastage even though the sale may be less profitable.
• The consumer budget did not reflect the price change , but the goods bought increased/reduced due to
this activity.
• Consumer expenditure pattern remains the same. It is not disturb due to price setting.
• One can adjust the demand generated by the market using the price control mechanism.
 3. Disadvantages in Unitary Elasticity
• Revenue is fixed for the products. Therefore, a producer needs to adopt the differentiation strategy to
boost the margin.
• Consumer consumption patterns are imbalanced due to fixed expenditure on the products.
• Consumer reaction is very fast against the price changes. Therefore, sometimes it becomes difficult for
organizations to predict of understand how their product demand is responding to changes in prices.
• It impacts the demand for goods drastically. Consumers may shift to some other similar product or may
not buy it at all. Thus, inspite of raising the prices, the manufacturers are not able to make profit
because the demand comes down equally and revenue remains the same.
• The organization with low margins finds it difficult to sustain because thin margins get eliminated for
product expansion.
• Along with the advantages, it is equally important to understand the disadvantages so that the idea can
be used in the competitive market.
 3.Example in Unitary Elasticity
So, the unitary elastic demand example products covered here are those items which are general whose
consumption can be avoided even like:

• Mobile phones
• Secondary Needs (electornic)
The producers of these items have seen a trend in their product revenue due to the pricing factor.
Therefore, producers put the product on sale to boost their income by decreasing the selling price.
4.Perfectly Elastic Demand (Ed = ∞)
Perfectly elastic demand, also known as infinite elasticity, occurs when consumers are willing to buy a
product at a specific price and not willing to buy it at any other price.
The demand curve is a horizontal line, and any increase in price will cause quantity demanded to drop to
zero. This type of demand is rare in the real world but is often used in economic models for simplicity.
4.Perfectly Elastic Demand (Ed = ∞)
Businesses with a perfectly elastic demand curve operate in perfectly competitive markets. These
companies are normally small and produce a good or service that is identical to other producers. No
single company impacts the market price for the good or service it sells. Their customers are only
motivated by price. These companies are “price takers”, meaning they must accept the market price, or
choose not to sell their product. Any company that tries to raise its price will see its sales fall to zero
because there are too many competitors offering the same product at a lower price. Conversely, a
company could lower its price, but would not do so because it could sell all it can offer at the market
price.
 4.Perfectly Elastic Demand (Ed = ∞)
Generally occurs in a perfectly competitive market with the following characteristics:
1. Many sellers and buyers
2. Producer as price taker (a producer cannot control the price according to his own
wishes, so he acts as a price taker, that is, he determines the price according to what the
market determines)
3. Goods sold are homogeneous (chilies, kitchen spices,meat,salted fish,)
4.No barrier entry means there are no barriers to market entry
5. Perfect information (buyers know the product being sold, know the market price)
5.Perfectly Inelastic Demand (Ed = 0)
Perfectly inelastic demand occurs when consumers are willing to buy a product at a specific quantity,
regardless of the price.The demand curve is a vertical line, and price changes have no effect on the
quantity demanded. Perfectly inelastic demand represents a situation where the quantity of a good
demanded remains constant despite variations in its price. This phenomenon can only occur when the
demand curve becomes perfectly vertical, indicating that the quantity demanded remains fixed.This
situation typically arises when a product has no substitutes or is part of essential commodities. In such
cases, consumers have no choice but to purchase the product at whatever price is available. This means
that even if the product price increases significantly, the demand for the product remains
unchanged.Businesses that produce goods or services considered indispensable to the public can increase
prices without fearing a decrease in demand. This situation can lead to monopolistic market conditions,
where a single provider controls the market. Governments can also utilize perfectly inelastic demand to
generate higher revenue through increased taxation on such goods and services. While it is a valuable
concept for economists studying situations where consumers have limited alternatives, its real-world
applicability is rare, primarily limited to certain unique products.
5.Perfectly Inelastic Demand (Ed = 0)
 5.Perfectly Inelastic Demand (Ed = 0)
Perfectly inelastic demand can be illustrated using the example of insulin, a life-saving
medication for people with diabetes. Imagine someone who relies on insulin to manage
their condition. The demand for insulin is perfectly inelastic for them because no
substitutes are available, and without insulin, their health and even their life are at risk.
Regardless of the price, this person will continue to buy insulin because it’s essential
for their well-being. Even if the price of insulin were to increase significantly, they
would still purchase it because there’s no alternative. In this case, the quantity
demanded for insulin remains the same, showcasing perfectly inelastic demand.
5.Perfectly Inelastic Demand (Ed = 0)
5.Perfectly Inelastic Demand (Ed = 0)
5.Perfectly Inelastic Demand (Ed = 0)
 5.Advantages Perfectly Inelastic Demand
• Manufacturers can ask for higher prices for their products.
• Governments can easily raise revenue under higher prices without affecting
customer demand.
• Economists can create and test economic models where customers have few
choices.
• Businesses may maximize profits.
• Markets may stabilize, and investors can profit from their investments.
• Firms can generate and predict accurate sales revenue for their products.
• Consumers may be sure of getting life-saving drugs and essential goods in every
situation.
 5.Disadvantages Perfectly Inelastic Demand

• Price gouging by businesses harms consumers.

• Businesses may have less incentive for innovation.
• It is rare to find in the real world.
• It may lead to consumer unrest due to higher prices for the same product.
• Market failure may occur due to it behaving like a monopoly.
• The market may behave like a monopoly.
• Higher prices may make it difficult for consumers to afford critical products.
Resources
● Hall,M. 2023. Elasticity vs. Inelasticity of Demand: What's the Difference?. Diakses pada 22 oktober 2023 dari
https://www.investopedia.com/ask/answers/012915/what-difference-between-inelasticity-and-elasticity-demand.asp#:~:text=
The%20four%20main%20types%20of,and%20advertising%20elasticity%20of%20demand
.
● Margaret,J. 2023. Price Elasticity of Demand Meaning, Types, and Factors That Impact It. Diakses pada 22 oktober 2023 dari
https://www.investopedia.com/terms/p/priceelasticity.asp
● Khanacademy.org, 2023, Price elasticity of demand and price elasticity of supply. Diakses pada 22 oktober 2023 dari
https://www.khanacademy.org/economics-finance-domain/microeconomics/elasticity-tutorial/price-elasticity-tutorial/a/price-
elasticity-of-demand-and-price-elasticity-of-supply-cnx#:~:text=Elasticities%20can%20be%20usefully%20divided,responsiv
eness%20to%20changes%20in%20price
.
● The Demand Curve by Marginal Revolution Uniersity https://youtu.be/kUPm2tMCbGE?si=3U91LS3ahMfE2XXM
● Elasticity of Demand – Micro Topic 2.3 by Jacob Clifford https://youtu.be/HHcblIxiAAk?si=hydS28q4UsSC0SfC
● https://www.wallstreetmojo.com/elastic-demand/
Assignment 3
Micro and Macro Economics
 Micro economics
• Microeconomics is a branch of economics that focuses on the study of individual
economic units, such as households, firms, and markets. It explores how these
economic agents make decisions, interact, and allocate resources.

• In the book Introduction to Microeconomics Theory, Sadono Sukirno states that the
definition of microeconomics is a branch of economics that studies consumer and
company behavior and decision making. Microeconomics itself functions to analyze
how all decisions and behavior influence the supply and demand for goods and
services which will determine prices, determine the supply and demand for further
goods and services.

• According to Mary A Merchant and William Snell, microeconomics is the study of

individuals, households and companies making decisions in the economic process.
 Macro economics
Macroeconomics is a branch of economics that focuses on the study of the
economy as a whole. It examines broad economic phenomena, aggregates,
and trends, and seeks to understand the overall behavior of an economy.
 The differences between microeconomics & macroeconomics

Macroeconomics and microeconomics are two distinct branches of economics that focus on different
aspects of the economy and have different scopes of analysis. Here are the key differences between the
two:

Scope of Analysis
Microeconomics examines the behavior of individual economic agents, such as households, firms,
and consumers. It delves into specific markets and industries, analyzing the decision-making processes
of these entities.
Macroeconomics looks at the economy as a whole. It deals with aggregate economic variables like
Gross Domestic Product (GDP), inflation, unemployment, and overall economic growth.
 The difference between microeconomics & macroeconomics

Units of Analysis:
In microeconomics, the primary units of analysis are individual economic actors. This could be a single
household's decisions regarding consumption, a firm's pricing and production choices, or a consumer's
preferences for different products.
Macroeconomics deals with aggregates, such as the total level of economic output (GDP), the overall price level
(inflation), and the unemployment rate. It does not focus on individual decision-makers.
Policy Implications:
Microeconomics often informs individual business decisions and market strategies. For example, a company might
use microeconomic analysis to set prices for its products.
Macroeconomics is used to inform government policy decisions. For instance, a central bank might use
macroeconomic analysis to set interest rates to control inflation or stimulate economic growth.
 The differences between microeconomics & macroeconomics

Focus on Aggregates:
Microeconomics generally does not consider aggregates like the overall price level, national income,
or the overall unemployment rate.
Macroeconomics focuses primarily on these aggregates and their trends over time.

Timeframe:
Microeconomics typically deals with short-term decisions and the immediate effects of individual
actions.
Macroeconomics often examines long-term trends and the overall performance of an economy over
extended periods.
 Conclusion

In summary, microeconomics is concerned with individual economic units and the specific decisions
they make within markets, while macroeconomics looks at the economy as a whole, focusing on the
broader aggregates and trends that affect a country's economic performance. Both branches of
economics are essential for understanding the complete economic picture.
Resources
● FADHILAH, A. (2023). MASALAH UTAMA EKONOMI, PERBEDAAN MAKRO DAN MIKRO EKONOMI DAN
INDIKATOR MAKRO EKONOMI.
● Kurniawan, P., & Budhi, M. K. S. (2015). Pengantar ekonomi mikro dan makro. Penerbit Andi.
● https://businessandfinance.expertscolumn.com/microeconomics-vs-macroeconomics-which-is-important-why