Chapter 3 Flashcards
It measures the responsiveness of one variable to a certain change of another variable.
Elasticity
The basic formula used to determine elasticity is:
Percentage change in variable x / Percentage change in variable y
or
%Δx / %Δy
Types of elasticity
Elastic, Inelastic, Unitary, Perfectly Elastic, and Perfectly Inelastic
if the percentage change in the quantity demanded exceeds the percentage in price.
measures the relationship between
change in quantity supplied following a change in price
Mga kagustuhan ng tao katulad ng makinarya,
produktong tinapay, tsokolate, gadget katulad ng laptop, computer.
Mga produktong madaling makonsumo
katulad ng pagkain, damit at pangunahing pangangailangan.
Elastic; Ed = >1
If percentage change in quantity demanded is less than the percentage change in price
change in price causes a smaller percentage change in supply.
Mahalagang-mahalaga; wala halos pamalit (kuryente at tubig), basic goods
Example: hindi madaling makonsumo at halos
walang ibang katulad na produkto tulad ng condominium, antique na kagamitan, gusali o mga pabrika.
Inelastic; Ed = <1
a change in one factor causes an equal or proportional change in another factor
Pantay lamang ang demand sa mgaproduktong apektado ng unitary elastic demand tulad ng mga makinarya, gusali, at maging mga obrang dibuho ng mga kilalang pintor.
Unitary; Ed = 1
The curve is represented by a straight horizontal line and shows that the market demand for a product is directly tied to the price.
Example: karaniwang nagaganap sa mga produktong may malaking presyo at patuloy na nagbabago ang presyo tulad ng kagamitan sa opisina, kusina, livestock.
means that any decrease in the product price would immediately cause the supply to shift to zero - equal to infinity
Kapag mababa ang pagtatakda ng presyo,
babagsak sa zero ang supply ng produkto na
maghuhudyat ng kakayahang bumili nang maramihan ang mga mamimili. Example: pangunahing pangangailangan
Perfectly Elastic; Ed=∞/ infinite
an economic condition in which a change in the price of a product or a service has no impact on the quantity demanded.
Mga produktong may patuloy na pagbabago sa presyo at nabibili sa anumang dami katulad ng school supplies, canned goods, CD/DVD
the price of a product will have no effect on
the supply
Mga produkto katulad ng mamahaling alahas, barko, makasaysayang gusali at eskultura.
Perfectly Inelastic; Ed=0
Measures the responsiveness of demand after a change in a product’s own price.
Demand Elasticity
This function shows three combinations:
Qd and P = Price Elasticity of Demand
Qd and Y = Income Elasticity of Demand
Qd and Prel = Cross-Price Elasticity of Demand
Its is the percentage change in quantity demanded that occurs with respect to a percentage change in price.
Price Elasticity of Demand
True or False: It is expected that the price elasticity of demand is positive because the relationship between price and quantity demanded is inversely related.
False: Negative
It is the _______ value that is usually taken and the negative sign is omitted.
Absolute
The flatness or steepness of the curve, is based on the total changes in price and quantity.
Slope
it is concerned with the total change relative to price and quantity.
Elasticity
When measuring a very small change in both price and quantity on a demand curve on a particular point, the above formula is used and is referred to as
Point Elasticity
Determinants of Price Elasticity of Demand
- Importance or degree of necessity of the goods
- Number of available substitute
- Proportion of income in price changes
- Time period
The more essential or necessary the goods or services, the more inelastic the demand.
Example: staple food, educational materials
Importance or degree of necessity of the goods
Demands for goods with greater number of substitutes are elastic, while goods with less or no substitute have inelastic demand.
Number of available substitute
Demand is inelastic for a product whose changes in price seemingly have no effect on the consumer income or budget. However, any change in price resulting to a substantial effect on consumers’ income has elastic demand.)
Proportion of income in price changes
The longer the time period is, the less elastic or more inelastic the demand will be. This is because consumers have enough time to adjust their buying behavior.
Time period
The responsiveness of quantity demanded to a change in income is known as the ________ _________. This measures the percentage change in demand over the percentage change in income.
Income Elasticity of Demand
A good is considered as a normal good when its income elasticity is _______. And, inferior good when its income elasticity is _______.
Positive, Negative
Normal good with an coefficient greater than 1 is known as ________GOODS while normal goods with an income elasticity of less than 1 yet manifest a positive result are known as __________GOODS
Luxury, Necessity
measures the responsiveness of quantity
demanded of a good to a change in the price
of another good.
Cross-Price Elasticity of Demand
Cross-Price Elasticity Formula:
Percentage change in Qd of Good x / Percentage change in Price of Good y
It measures whether the good is substitute or a complementary.
Cross Price Elasticity of Demand
are goods that are used in conjunction with other goods. The cross elasticity of demand for complementary goods is negative (-). As the price for one item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped.
Example: If the price of coffee increases, the quantity demanded for coffee stir sticks drops as consumers are drinking less coffee and need to purchase fewer sticks.
Complementary Goods
are goods that can be used in place of another. The cross elasticity of demand for substitute goods is always positive (+) because the demand for one good increases when the price for the substitute good increases.
Example: The demand for a competitor’s brand of toothpaste rises when the price of one brand does, making toothpaste an example of a substitute good.
Substitute Goods
a measure used in economics to show the responsiveness, or elasticity, of the quantity
supplied of a good or service to a change in its
price.
Elasticity of Supply
Determinants of Price Elasticity of Supply
- Monetary or Intermediate
- Short-run
- Long-run
In this period, supply will be perfectly inelastic
and the supply is fixed.
Monetary or Intermediate
In this state, supply is inelastic. The output of
production can increase even if equipment is fixed.
Short-run
In this period, supply is elastic. New firms are
expected to enter or the old one may leave the
industry.
Long-run
Importance and Application of
Elasticity
- Has several applications both in business and economic decision making.
- Helps every policy formulating body develop and/or formulate appropriate strategies and
programs. - Can determine the effect of price changes
on the revenue.
