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and Demand
Other Concepts of Elasticity
✘ Elasticity – It is a measure used in response to
changes in the determinants of demand and
supply.
✘ Price elasticity – A measure used in determining
the percentage change in quantity against the
percentage change in price.
Other Concepts of Elasticity
✘ Income Elasticity – The percentage change in
quantity compared to the percentage change
in income.
Unitary Demand
𝑄𝑠2 −𝑄𝑠1
𝑄𝑠1
es = 𝑃2 −𝑃1
𝑃1
Example
Given:
Supply Schedule of Commodity X
Price Quantity Supplied (Per Unit)
₱12.00 38
₱21.00 56
Let:
Qs1 = 38 P1 = ₱12.00
Qs2 = 56 P2 = ₱21.00
Note
The coefficient of price elasticity of supply is
positive unlike the price elasticity of demand.
This is so because of the direct proportionality
of price and quantity supplied. What does 0.62
mean? This means that for every 1% increase in
the price, quantity supplied will increase by 0.62
(62%).
Types of Supply Curve
Types of Supply Curve
Income Elasticity
The coefficient of income elasticity
measures a product’s percentage change in
quantity as a ratio of the percentage
change in income which caused the change
in quantity.
Formula:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦
ey =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒
𝑄2 −𝑄1
𝑄1
ey = 𝑌2 −𝑌1
𝑌1
Example
Given:
Income Quantity Demanded
₱1000.00 200
₱2000.00 800
Why is ey = 3? This means that for every 1%
increase in income, quantity demanded will
increase by 3%.
If quantity demanded is greater than 1, income
is elastic and the good is superior. If quantity
demanded is lesser than 1, income is inelastic
and the good is inferior; and if it is equal to 1, it is
unitary and the good is normal.
Cross Elasticity
The coefficient of cross elasticity of
demand relates a percentage change in
quantity demanded of Good A in response
to a percentage change in the price of
Good B.
Formula:
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝐷 𝑜𝑓 𝐺𝑜𝑜𝑑 𝐴
ec =
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝐺𝑜𝑜𝑑 𝐵
𝑄2𝐴 −𝑄1𝐴
𝑄1𝐴 Where:
ec = 𝑃2𝐵 −𝑃1𝐵 QA = Quantity demanded of Good A
PB = Price of Good B
𝑃1𝐵
Example
Given: