Elasticity Types of Elasticity

May 20th, 2015
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 A measure a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.  Is a measure of how much buyers and sellers respond to changes in market conditions

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Pineda, Loretta Maria A.BSN-IVEconomicsI. ElasticityA measure a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants.Is a measure of how much buyers and sellers respond to changes in market conditionsAllows us to analyze supply and demand with greater precision.Elasticity allows economists to quantify the differences among market without standardizing the units of measurement.Types of Elasticity1. Price Elasticity of DemandIs the percentage change in quantity demanded given a change in the price.It is a measure of how much the quantity demanded of a good responds to a change in the price of that good Determinants of Price Elasticity of Demand:Availability of Close SubstitutesNecessities versus LuxuriesDefinition of the MarketTime HorizonDemand tends to be more elastic :the larger the number of close substitutes.if the good is a luxury.the more narrowly defined the market.the longer the time period.Computing the price elasticity of demandThe price elasticity of demand is computed as the percentage change in price.Price Elasticity of Demand = %Change in Quantity Demand %Change in the PriceExample:If the price of an ice cream cone increases from P2.00 to P2.20 and the amount you buy falls from 10 to 8 cones then the elasticity demand would be calculated as:Computing the Price Elasticity of Demand Using the Midpoint FormulaThe midpoint formula is preferable when calculati

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