BAUTISTA, Ghislaine Faye M.

ELE-EIT (10:00-11:30)
Economics, Investments, and Taxation
ELASTICITY PART 1: Reviewer
Elasticity is defined as:
1. Elasticity is a general concept
It means that it is general concept in
economics.
2. used to quantify
This means that elasticity involves
numerical values, so we expect
measurements, formulas, and
computations.
3. the response in one variable
A variable is an element, a feature,
or a factor that is liable to vary or
change. It may be independent or
dependent.
This refers to the dependent variable
or X.
4. when another variable changes
Ms. Eloisa Dela Cruz
No matter how much the price
changes, people would still avail it
because it is a necessity.
2. Perfectly Elastic
Perfectly Elastic Graph looks like the
letter E
Perfectly Elastic products have
thousands of competitors like
unbranded market products e.g.
mean, fish, vegetable, fruits.
When the price of these products
changes, consumers can easily find
alternatives.

This line also refers to another

variable.
This line is the independent variable
or Y.
Variables
Other variables used in elasticity are
Income, Wealth, Price of the other
Good (Quantifiable variables ); and
Taste and Preferences, and
Expectations (non-quantifiable 3. Inelastic
variables). Inelastic curve is almost or slightly
vertical or going down.
Types of Elasticity Inelastic products only have few
1. Perfectly Inelastic competitors like telecommunications
Perfectly Inelastic Curve looks like companies.
the letter I It is characterized by no matter how
Perfectly Inelastic products are high the increase in the price of the
products with no competitors like good, the quantity demanded of
electricity. products almost stays the same.
BAUTISTA, Ghislaine Faye M. ELE-EIT (10:00-11:30)
Economics, Investments, and Taxation Ms. Eloisa Dela Cruz

4. Elastic
Elastic curve is almost or slightly
horizontal or lying down.
Elastic products have many
competitors like soft drinks, soaps,
and detergents.
It cannot increase its price as much
as it wants because the slightest
increase can cause a damaging
decrease in the Quantity Demanded

5. Unitary
Unitary elasticity is a type of
elasticity whose change in the price
is equal to the change in quantity.
Unitary elastic products change in
price when demand changes e.g. old
phone, and other gadgets.
BAUTISTA, Ghislaine Faye M. ELE-EIT (10:00-11:30)
Economics, Investments, and Taxation Ms. Eloisa Dela Cruz
CONSUMER BEHAVIOR THEORY: and still have excess money to buy
Reviewer other needs.
o There are two kinds of goods
 The two components of
according to income:
microeconomics are households
 Normal goods-
/individuals which are the basic
Goods for which
demanding units, and firms which
demand goes up when
are basic supplying units.
income is higher and
 Since economics is also considered
for which demand
as a behavioral course because it
goes down when
studies the behavior of buying units
income is lower. An
and the selling of units.
example of this
 Consumer Behavior Theory is the Sbarro Pizza.
behavior of the buying units.  Inferior goods-
 Basic means the smallest, or the Goods for which
most fundamental unit e.g. the basic demand tends to fall
unit of society is family, the basic when income rises.
unit of government is the barangay. An example of this is
 The Determinants of Household Greenwich Pizza.
Demands are  The third determinant is wealth, also
1) Price of the good known as net worth. It is the total
2) Income value of what a household owns
3) Wealth minus what it owes. It should be
4) Price of the other good noted that properties on loan or
5) Tastes and preferences under mortgage are not part of your
6) Expectations wealth.
 Demand refers to the abstract  The fourth out of six determinants is
concept which vaguely means “the the Price of other Goods because the
inclination to buy, the desire to buy.” consumer will change his buying if
 The first one of the six factors that the price of the other good will
affect demands is Price of the Good. increase or decrease.
It is considered a determinant o 2 kinds of Goods and
because households will not buy a Services according to the
product or avail a service if they Price of the other Good:
cannot afford the product or services.  Substitutes- Goods
 Income is defined as the sum of the that can serve as
household’s wages, salaries, profits, replacements for one
interest payments, rents, and other another; when the
forms of earnings in a given period price of one increases,
of time. It is also second out of six demand for the other
determinants because households / decreases.
individuals can buy only if they have
enough income to buy the product
BAUTISTA, Ghislaine Faye M. ELE-EIT (10:00-11:30)
Economics, Investments, and Taxation Ms. Eloisa Dela Cruz
 There are two kinds this is coffee and
of substitutes namely, creamer.
perfect and imperfect.  It should be noted that Demand and
 Perfect Quantity Demanded are two different
Substitutes - concepts. Demand is the desire to
Identical buy, it is a feeling, it is something
products. abstract, and felt. Meanwhile,
Products Quantity Demanded is is concrete, it
which is a numerical value, the number of
customers units bought. Therefore, the state of
perceive have wanting to buy ice cream is the
no difference demand, while buying 200 tubs of
at all or just ice cream is the quantity demanded.
the slightest  To elaborate further the relationship
difference. of price and quantity, and how they
Example is vary when a set of product is a
Coke and complement or substitute refer to the
Pepsi. following:
 Imperfect o If the products are a
Substitutes - complement, when one of the
are products in product’s price increases, the
which the quantity of both products
customers see decreases.
a difference  Ex. If the price of egg
between increases, the quantity
products of egg decreases, and
and /or the quantity of its
different complement, ham,
producers that also decreases.
fulfill the o If the products are a
same needs substitute, when one of the
and /or product’s price increases, the
different quantity of product decreases,
needs. while its substitute increases.
Example is tea  Ex. If the price of
and coffee Nutella increases, the
 Complements- Goods quantity of Nutella
that “go together”; a jars decreases, and the
decrease in the price quantity of its
of one results in an substitute, Goya
increase in demand Hazelnut Spread,
for the other and vice increases.
versa. An example of
BAUTISTA, Ghislaine Faye M.
Economics, Investments, and Taxation
 The fifth determinant of demand is
Tastes And Preferences. It is defined
as the subjective (individual) tastes,
as measured by utility, of various
bundles of goods. It does not matter
if the price of something is
affordable, if you like the more
expensive one, you will buy that.
 The last determinant is expectations.
It refers to the economic outlook of
households. Expectations will have a
significant bearing on current
economic activity. If people expect
an improvement in the economic
outlook, they will be more willing to
buy goods. But, with negative
expectations, they will cut back on
spending. Examples of this are sale,
discounts and vacancy.
 Amongst the six factors that affect
demands, price of the product,
income, wealth, and price of the
other good are considered as
BUDGET CONSTRAINTS. This
term refers are the limits imposed on
household choices by the
abovementioned numerical factors.
 Amongst the six factors that affect
demands, tastes and preferences, and
expectations, are considered as the
BASIS OF UTILITY. It is defined as
Basis of usefulness of the product to
the consumer therefore they desire to
possess or own the product.
 Utility is the satisfaction a product
yields. Utility can never be
measured, it differs from person to
person.
 Marginal Utility refers to the
additional satisfaction gained by the
consumption or use of one more unit
of a good or service.
ELE-EIT (10:00-11:30)
Ms. Eloisa Dela Cruz
 Law of Diminishing Marginal Utility
refers to the he more of any one good
consumed in a given period, the less
satisfaction (utility) generated by
consuming each additional
(marginal) unit of the same good.
For example, you consume four
candies in a row. The first candy is
satisfactory, the second is still good,
but the third makes your teeth hurt
already, and at the fourth candy you
decide to stop eating candy because
it does not give you satisfaction
anymore.
 Util is the measure of satisfaction.
 Total Utility is the total amount of
satisfaction obtained from the
consumption of a good or service. It
is the sum of all the utils that have
been enjoyed.
 Total Utility can be used in
coordination with Opportunity Cost.
In Opportunity Cost we have two
choices and we choose that one
choice that will give us the
maximum satisfaction that means the
one that will give us less to lose.
 Income Effect is defined as the
change in demand for a good or
service caused by a change in a
consumer's purchasing power
resulting from a change in real
income.
 Real Income is how much money an
individual or entity makes after
accounting for inflation.
