Introducing
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Elasticities
3
Elasticities
Simon Kondor
The first concepts
Definicions
Demand and supply
Demand
Demand
- The sum of people who have ability and willingness to buy a good at a given price
- The law of demand is that there is a negative relationship between the price and the quantity demamnded
Supply
Supply
- The amount of good that a firm is willing and able to produce at a given price
- The law of supply is the positive correlation between the price and the quantity supplied
Elasticity
Shows us how the demand and supply respondes to change in price. Relationship between price and quantity purchased is analysed by elasticity
Price elasticity of demand
PED
It meagures how quantity demanded of a good changes after a change in price.
The percentage change of quantity demanded devided by the percentage change in price
The range of values of the PED
Range of values
T0hese ranges are helping us to interpret different outcomes of an elasticity research
Demand is price elastic (PED>1)
PED>1
Demand is price inelastic (0<PED<1)
0<PED<1
Demand is unit elastic (PED=1)
PED=1
Demand is perfectly inelastic (PED=0)
PED=0
The demand is perfectly elastic (PED=∞)
PED=∞
Price elasticity of supply
PES
It meagures how quantity supplied of a good changes after a change in price.
The percentage change of quantity supplied devided by the percentage change in price
The range of values of the PES
Range of values
These ranges are helping us to interpret different outcomes of an elasticity research