Hi! This is a practical approach on the elasticity of demand. Easy to understand with bonus exercises at the end. Again, these concepts are not mine. For my Applied Economics class. Ciao!

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MOVEMENT OF
DEMAND CURVE
ELASTICITY OF
DEMAND
July 25, 2017

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Increase in Demand
P
Qd
D0
D1
Increase in
demand will shift the
entire demand curve
to the RIGHT, at
any given price

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Decrease in Demand
P
Qd
D0
D1
Decrease in
demand will shift the
entire demand curve
to the LEFT, at any
given price

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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

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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

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ELASTICITY OF DEMAND

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What is elasticity?
 Elasticity describes how much a
change in price affects the
quantity demanded

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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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Ed= Elasticity of demand
Q= Original Quantity
Q1 = New Quantity
P= Original Price
P1 = New Price
∆= Change.

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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?

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Ed= |(60-50)/50|
|(40-50)/50|
Ed= |0.2|
|-0.2| = |-1|
Ed= 1

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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)

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 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.

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TEAM WORK!
Find your partner.
Write your answers in 1 whole sheet
paper.

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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?

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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

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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?