simple but effective presentation on what is elasticity

1. Price Elasticity of Demand

2.  Demand is Elastic if the proportional change in
Quantity is greater than the proportional change
in price.
Example: Price increases by 5% & the quantity
demanded falls by 6%...
 Demand is Unitary when the proportional
change in quantity is equal to the proportional
change in price.
Example: Price falls by 5% & the demand rises
by 5%...

3.  Demand is inelastic
if the proportional
change in quantity is
less than the
proportional change
in price.
Example: Price falls by
5% & the demand
increases by 2%...

4. PED = % change in quantity demanded
Price % change in price
P
Gain in total
revenue (5%0
P1
Loss in total
revenue (6%)
Q Q1 Quantity
Elastic demand P.E.D. = (>1)

5. Price
P
Inelastic demand P.E.D. = (<1)
Loss in
total
revenue
P1
Gain in
total
revenue
Quantity
Q Q1

6. Features of Price Elasticity of Demand
Feature Elastic Goods Inelastic Goods
PED value Greater than 1 Less than 1
Price rise means Larger fall in demand Smaller fall in
demand
Slope of demand Flat Steep
curve
Number of Many Few
substitutes
Type of good Luxury Necessity
Price of good Expensive Cheap
Example Jaguar cars Petrol

7. Price Elasticity of
Supply

8.  Priceelasticity of supply (PES) measures
the responsiveness of supply to a given
change in price.
 PES = % change in quantity supplied
% change in price

9.  Supply is said to be
elastic when the
quantity changes by a
greater proportion than
the price change.
 Inelasticsupply is
when quantity changes
by a smaller proportion
than the price change.

10. Features of Elasticity of Supply
Feature Elastic Goods Inelastic Goods
PES Value Greater than 1 Less than 1
A prise rise means A larger rise in supply A smaller rise in
supply
Slope of supply curve Flat Steep
The good is produced Rapidly Slowly
The time period is Months Days
The firm has Large stocks Limited stocks
Example Screws Beef

11. Formation of a Market Price
 Inthe market place the forces of Supply &
Demand interact to create a market price.
 Ineconomics this is known as the
equilibrium price – the price at which the
quantity demanded equals the quantity
supplied…

12. Price of Quantity Quantity
Fish Demanded Supplied
60p 300 600
55p 400 550
50p 500 500
45p 600 450
40p 700 400
35p 800 350

13. The equilibrium price is 50p. At this price the quantity that
will be bought & sold is 500
Price
D S
60
50
40
30
20
10
0
Quantity 100 200 300 400 500 600 700 800