Price elasticity
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Transcript of Price elasticity
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ObjectivesAt the end of the lesson, the students should be able to: define price elasticity of demand and price
elasticity of supply
identify the different types and characteristics of demand elasticity
identify the determinants of price elasticity of supply and demand
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ObjectivesAt the end of the lesson, the students should be able to:
solve for the price elasticity of demand and price elasticity of supply
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PRICE ELASTICITY OF
DEMAND AND SUPPLY
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Law of Demand
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price elasticity of demand
Measures the responsiveness of
demand to changes in price
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price elasticity of demand
Price elasticity of demand = % change in quantity demanded
% change in price
ED = % Q % P
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Q2 – Q1 ED = Q
P2 – P1 P
price elasticity of demand
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elasticity ratio of percentage
Q = Q2 – Q1 P = P2 – P1
% Q = Q2 – Q1 % P= P2 – P1
Q P
Q = Q2 + Q1 P = P2 + P1 2 2
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Characteristics
value type of demand Response to change
0
Perfectly inelastic demand
QD remains the same
0-1 Inelastic demand Minimal change in QD
1 Unitary elastic Change in price = change in demand
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Characteristics
value type of demand Response to change
1+ Elastic demand Bigger change in QD
infinity
Perfectly elastic Any change in price would lead to extremely big change in QD
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type of demand
Elastic
Inelastic
Unitary elastic
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shape of demand according to elasticity
relatively flat
relatively steep
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shape of demand according to elasticity
extremely flat
extremely steep
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determinantsavailability of substitutes
importance of the item in the budget
time frame
Demand is more elastic when there are more substitutes
Demand is inelastic when the product is a more significant portion of the consumer’s budget
Demand can be more elastic over time
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law of supply
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price elasticity of supply
Measures the responsiveness of supply to the changes in price
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ES = % S % P
ES = Q2 – Q1 Q
P2 – P1 P
price elasticity of supply
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S = S2 – S1 P= P2 –P1
% S = Q2 – Q1 % P = P2 – P1 Q P
Q = Q2 + Q1 P = P2 + P1
2 2
price elasticity of supply
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Characteristics:
Value Type of supply Response to change in price
0 Perfectly inelastic supply
QS remains the same
0-1 Inelastic supply Minimal change in QS 1 Unitary supply Change in price =QS
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Characteristics: Value Type of supply Response to change in price
1 + Elastic supply Bigger change in QS Infinity Perfectly
elastic supply Any change in price would lead to extremely big change in QS
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determinants
Manufactured goods
Agricultural goods
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Seatwork
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Compute for the price elasticity of demand:
DEMAND FOR good Y
A: Q1= 160 ; P1 =110B: Q2= 240 ; P2 =90
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quiz: 1.Compute for the price elasticity of demand:
Q1= 200; P1= 11Q2= 100; P2= 15
2.Compute for the price elasticity of supply:
Q1= 75; P1= 30Q2= 175; P2= 31