1. 1. CONCEPTS OF ELASTICITY MERCADO, RICH-ANNE M. ORIGENES, MIA CHERISE P.
2. 2. ELASTICITY ELASTICITY measures the responsiveness of one variable to a certain change of another variable. ELASTICITY = percentage change in variable y percentage change in variable x
3. 3. ELASTICITY OF DEMAND Is a measure of the degree of responsiveness of quantity demanded of a product to a given change in one of the independent variables which affect demand for that product.
4. 4. CLASSIFICATIONS OF ELASTICITY OF DEMAND PRICE ELASTICITY OF DEMAND - Is the responsiveness of demand to change in price of the good sold. INCOME ELASTICITY OF DEMAND - Is the responsiveness of demand to change in their income. CROSS ELASTICITY OF DEMAND - Is the responsiveness of demand for a certain good, in relation to changes in price of other related goods.
5. 5. PRICE ELASTICITY OF DEMAND = % %
6. 6. PRICE ELASTICITY OF DEMAND = % % ELASTIC DEMAND
7. 7. EXAMPLE
8. 8. DEGREE OF PRICE ELASTICITY OF DEMAND = % % INELASTIC DEMAND
9. 9. EXAMPLE
10. 10. DEGREE OF PRICE ELASTICITY OF DEMAND = % % UNITARY ELASTIC DEMAND
11. 11. EXTREME CASES OF PRICE ELASTICITY OF DEMAND PERFECTLY ELASTIC DEMAND - Demand is totally responsive to changes in price. PERFECTLY INELASTIC DEMAND - Demand totally does not respond to any changes in price.
12. 12. EXTREME CASES OF PRICE ELASTICITY OF DEMAND
13. 13. DETERMINANTS OF PRICE ELASTICITY OF DEMAND 1. IMPORTANCE OR DEGREE OF NECESSITY OF THE GOODS. 2. NUMBER OF AVAILABLE SUBSTITUTES. 3. THE PROPORTION OF INCOME IN PRICE CHANGES. 4. TIME PERIOD.
14. 14. INCOME ELASTICITY OF DEMAND = % %
15. 15. NORMAL & INFERIOR GOODS NORMAL GOOD - Means that as income increases, more goods and services will be demanded. INFERIOR GOOD - Means that as income rises, quantity demand for such good declines.
16. 16. LUXURY & NECESSITY GOODS LUXURY GOOD - Are normal goods with an elasticity coefficient greater than 1. NECESSITY GOOD - Are normal goods with an income elasticity of less than 1 yet still manifest positive result.
17. 17. ELASTICITY OF SUPPLY Refers to the reaction or response of the sellers or producers to price changes of good sold. In other words, it is a measure of the degree of responsiveness of supply to a given change in price.
18. 18. PRICE ELASTICITY OF SUPPLY EQUATION = % %
19. 19. DEGREE OF PRICE ELASTICITY OF SUPPLY ELASTIC SUPPLY - A change in price leads to a greater change in quantity supplied. INELASTIC SUPPLY - A change in price leads to a lesser change in quantity supplied. UNITARY ELASTIC SUPPLY - A change in price leads to an equal change in quantity supplied.
20. 20. EXTREME CASES OF PRICE ELASTICITY OF SUPPLY PERFECTLY ELASTIC SUPPLY - This occurs when there is no change in price, and there is an infinite change in quantity supplied. PERFECTLY INELASTIC SUPPLY - This happens when a change in price has no effect on quantity supplied.
21. 21. DETERMINANTS OF PRICE ELASTICITY OF SUPPLY 1. MONETARY OR INTERMIDIATE. 2. SHORT-RUN. 3. LONG-RUN.
22. 22. END OF PRESENTATION