z

MOVEMENT OF DEMAND CURVE

ELASTICITY OF DEMAND

July 25, 2017

z

Increase in Demand

P

Qd

D0

D1

Increase in

demand will shift the

entire demand curve

to the RIGHT, at

any given price

z

Decrease in Demand

P

Qd

D0

D1

Decrease in

demand will shift the

entire demand curve

to the LEFT, at any

given price

z

Increase in Quantity Demanded

P

Qd

QD1

Increase in

quantity demanded

will move the point

quantity demanded

given at a lower price

in the demand curve

QD2

3

1

5 10

z

Decrease in Quantity Demanded

P

Qd

QD1

Decrease in

quantity demanded

will move the point

quantity demanded

given at a higher price

in the demand curve QD2

3

1

5 10

z

ELASTICITY OF DEMAND

z

What is elasticity?

Elasticity describes how much a

change in price affects the

quantity demanded

z

z

z

z

What is elasticity of demand?

Defined as the percentage change in

quantity demanded to the percentage

change in price that brings about

change in quantity demanded

z

z

Ed= Elasticity of demand

Q= Original Quantity

Q1 = New Quantity

P= Original Price

P1 = New Price

∆= Change.

z

SAMPLE

Suppose you are selling 50 candles for P50

dollars. You find that decrease of P10 pesos

increases the demand to 60. What would

be price elasticity of demand?

z

Ed= |(60-50)/50|

|(40-50)/50|

Ed= |0.2|

|-0.2| = |-1|

Ed= 1

z

Ed<1: Inelastic demand (change in price,

small effect on quantity demanded

Ed>1: Elastic demand (change in price will

have a large effect on quantity demanded

Ed=1: Unitary elastic demand (change in

price, same demand)

z

If Neil's elasticity of demand for hot dogs is constantly

0.9, and he buys 4 hot dogs when the price is P1.50

per hot dog, how many will he buy when the price is

P1.00 per hot dog?

This time, we are using elasticity to find quantity,

instead of the other way around. We will use the

same formula, plug in what we know, and solve from

there.

z

TEAM WORK!

Find your partner.

Write your answers in 1 whole sheet

paper.

z

1. Yesterday, the price of envelopes was P3 a

box, and Julie was willing to buy 10 boxes.

Today, the price has gone up to P3.75 a box,

and Julie is now willing to buy 8 boxes. Is Julie's

demand for envelopes elastic or inelastic? What

is Julie's elasticity of demand?

z

2. Problem : Which of the following goods are likely to

have elastic demand, and which are likely to have

inelastic demand?

Home cooking oil

Pepsi

Chocolate

Water

Heart medication

Jeans

z

3. Problem: Jane’s elasticity of demand

for ballpens is constantly 0.5, and she

buys 6 ballpens when the price is P3 per

ballpen, how many will he buy when the

price is P5 per ballpen?