Elasticities of Demand & Supply
3-1. Elasticity is the ratio of the
proportional change in one variable with respect to proportional change in
another variable. Price elasticity, for example, is the sensitivity of quantity
demanded or supplied to changes in prices. Elasticity is usually expressed as a
negative number but shown as a positive percentage value.
3-2. The price elasticity of demand (PED)
is an elasticity that
measures the nature and degree of the relationship between changes in quantity
demanded of a good and changes in its price.
3-3. How
can we measure the price elasticity of demand.
· Example:
find price elasticity of demand when
the price of papers 10$ for band, the quantity demanded are 100 bands, but when
the price increase to 12$ for band, the quantity demanded decrease to 60 bands?
Solution:
3-4. The
kinds of elasticity of demand:there are five kinds of elasticity of demand as
follows:
3-4.1. high
elasticity: the small change in price give the big change in quantity
demanded.
3-4.2. low
elasticity: the big change in price give the small change in quantity
demanded.
3-4.3. Unity
elasticity: the change in price give the same change in quantity demanded.
3-4.4. Non
elasticity: when the change in price doesn’t give any change in quantity
demanded.
3-4.5. Infinity
elasticity: the small change in price will lead to replace this piece of good
to another.
3-5. Price elasticity of supply: is
defined as a numerical measure of the responsiveness of the quantity supplied
of product(A) to a change in price of product (A) alone.
3-6. income elasticity of demand:
measures the responsiveness of the quantity demanded of a good to the change in
the income of the people demanding the good. It is calculated as the ratio of
the percent change in quantity demanded to the percent change in income.