Lesson 5 Elasticity of Demand & Movement of Demand Curve
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The document discusses the concepts of demand elasticity, including how changes in demand and quantity demanded affect the demand curve. It explains the definition of elasticity of demand and provides formulas and examples to calculate it. Additionally, there are interactive exercises to apply the understanding of demand elasticity in different scenarios.
Lesson 5 Elasticity of Demand & Movement of Demand Curve
- 1. z MOVEMENT OF DEMAND CURVE ELASTICITY OF DEMAND July 25, 2017
- 2. z Increase in Demand P Qd D0 D1 Increase in demand will shift the entire demand curve to the RIGHT, at any given price
- 3. z Decrease in Demand P Qd D0 D1 Decrease in demand will shift the entire demand curve to the LEFT, at any given price
- 4. z Increase in Quantity Demanded P Qd QD1 Increase in quantity demanded will move the point quantity demanded given at a lower price in the demand curve QD2 3 1 5 10
- 5. z Decrease in Quantity Demanded P Qd QD1 Decrease in quantity demanded will move the point quantity demanded given at a higher price in the demand curve QD2 3 1 5 10
- 7. z What is elasticity? Elasticity describes how much a change in price affects the quantity demanded
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- 11. z What is elasticity of demand? Defined as the percentage change in quantity demanded to the percentage change in price that brings about change in quantity demanded
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- 13. z Ed= Elasticity of demand Q= Original Quantity Q1 = New Quantity P= Original Price P1 = New Price ∆= Change.
- 14. z SAMPLE Suppose you are selling 50 candles for P50 dollars. You find that decrease of P10 pesos increases the demand to 60. What would be price elasticity of demand?
- 15. z Ed= |(60-50)/50| |(40-50)/50| Ed= |0.2| |-0.2| = |-1| Ed= 1
- 16. z Ed<1: Inelastic demand (change in price, small effect on quantity demanded Ed>1: Elastic demand (change in price will have a large effect on quantity demanded Ed=1: Unitary elastic demand (change in price, same demand)
- 17. z If Neil's elasticity of demand for hot dogs is constantly 0.9, and he buys 4 hot dogs when the price is P1.50 per hot dog, how many will he buy when the price is P1.00 per hot dog? This time, we are using elasticity to find quantity, instead of the other way around. We will use the same formula, plug in what we know, and solve from there.
- 18. z TEAM WORK! Find your partner. Write your answers in 1 whole sheet paper.
- 19. z 1. Yesterday, the price of envelopes was P3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to P3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?
- 20. z 2. Problem : Which of the following goods are likely to have elastic demand, and which are likely to have inelastic demand? Home cooking oil Pepsi Chocolate Water Heart medication Jeans
- 21. z 3. Problem: Jane’s elasticity of demand for ballpens is constantly 0.5, and she buys 6 ballpens when the price is P3 per ballpen, how many will he buy when the price is P5 per ballpen?