Elasticity of Demand

Presented by : Martin, Princess Rodessa A.,

ABM - 11
 Elasticity

It is introduced by Alfred Marshall.
It is primarily related to extension or contraction
of demand for a fall or rise in price.
It is also a measurement of how much buyers and
sellers respond to changes in market conditions.

The coefficient of elasticity is the number obtained

when the percentage change in demand is divided by
the percentage change in determinant.
 Elasticity
( Degrees of Elasticity )

 1. Elastic
- The absolute value of the coefficient of elasticity is greater than
1.

EXAMPLE :
- For instance, Coke vs. Pepsi is a classic example in Economics. If the
price of one of these products increases, the quantity of it demanded will
likely diminish, leading to an increase in the quantity demanded of the
other product. In other words, if the price of Coke increases, ceteris
paribus, the quantity demanded of Coke will likely diminish because
people switch to Pepsi.

 Elasticity
( Degrees of Elasticity )

 1. Inelastic
- The absolute value of the coefficient of elasticity is less than 1.

EXAMPLE :
Specialty Coffee Drinks
- Many coffee shops have developed branded drinks and specialized
experiences in order to reduce substitutes and build customer
loyalty. While black coffee is available almost universally, there are few
substitutes for a Starbucks Java Chip Frappuccino. Demand for such
products is more inelastic.

 Elasticity
( Degrees of Elasticity )

1. Unitary Elastic
- The absolute value of the coefficient of elasticity is
equal to 1.

EXAMPLE :
- The price of digital cameras increases by 10%, the quantity
of digital cameras demanded decreases by 10%. The price
elasticity of demand is (unitary elastic demand).

 Price Elasticity of Demand

It is the responsiveness of quantity to a change in
another variable. (i.e., price, income, price of other
goods)

The value of price elasticity may be measured in two ways :

1. Arc Elasticity
2. Point Elasticity
 Arc Elasticity

 The value of elasticity is computed by choosing
two points on the demand curve and comparing
the percentage changes in the quantity and the
price on those two points.

FORMULA :
EP = {(Q₂ - Q₁)/(Q₂ + Q₁/2)} ÷ {(P₂ - P₁)/(P₂ +
P₁)}
 Point Elasticity

It measures the degree of elasticity on a single
point on the demand curve.

FORMULA :
EP = {(Q₂ - Q₁)/Q₁} ÷ {(P₂ - P₁)/P₁}
 Activity !

I. Identify (answer in capital letters)
1. It is primarily related to extension or
contraction of demand for a fall or rise in price.
2. It is the responsiveness of quantity to a change
in another variable. (i.e., price, income, price of
other goods)
3. The Formula for Arc and Point Elasticity
 

THE END !!
Thank you so much for listening!