1. ELASTICITY

2. QUIZ 1. Graph the demand and supply curves in a single axis. Label properly. 2. Galunggong is an inferior good. What happens to the demand for galunggong when income falls?

3. QUIZ 3. Luxury goods are a special kind of inferior goods called Giffen goods. People buy them for their value. If the price of Giffen goods increase, what happens to the demand? 4. Is the demand for rice price inelastic or price elastic?

4. QUIZ 5. Draw a perfectly elastic demand curve. BONUS: A VERY famous golfer who was an Eco major in Stanford University but did not finish his degree.

5. PRICE ELASTICITY OF DEMAND How much QD responds to ΔP Elastic – responds substantially Inelastic – responds only slightly

6. PRICE ELASTICITY OF DEMAND Value may sometimes be negative PED > 1, Elastic, flatter PED < 1, Inelastic, steeper

7. PRICE ELASTICITY OF DEMAND Example: Yemayhem yoyos became exceedingly popular after the P2.00 price fell by P0.10. At least, sales rose from 110 to 118 units. What was the price elasticity of the product?

8. PRICE ELASTICITY OF DEMAND Determinants Availability of close substitutes Necessities vs. Luxuries Definition of market Time horizon

9. PRICE ELASTICITY OF DEMAND

10. PRICE ELASTICITY OF DEMAND

11. PRICE ELASTICITY OF DEMAND

12. PRICE ELASTICITY OF DEMAND

13. PRICE ELASTICITY OF DEMAND

14. PRICE ELASTICITY OF DEMAND

15. TOTAL REVENUE Total Revenue = PQ Increases in Price Inelastic = increase in revenue Elastic = decrease in revenue

16. TOTAL REVENUE IN A LINEAR DEMAND CURVE Low price, high quantity = inelastic Increase in price  increase in revenue High price, low quantity = elastic Increase in price  decrease in revenue

17. OTHER DEMAND ELASTICITIES Income Elasticity of Demand Responsiveness of demand to changes in income

18. OTHER DEMAND ELASTICITIES Normal Goods – Positive Inferior – Negative Necessity (Price Inel) – small income el Luxury (Price el) – large income el

19. OTHER DEMAND ELASTICITIES Cross-price elasticity of demand Responsiveness of demand to changes in the price of another good

20. OTHER DEMAND ELASTICITIES Substitutes – positive Complements - negative

21. PRICE ELASTICITYOF SUPPLY How much QS changes as a result of a change in price

22. PRICE ELASTICITYOF SUPPLY When banana prices decreased from P15 to P9 per box, production fell from 8M to 6M boxes per month. Calculate the price elasticity of supply For banana producers.

23. PRICE ELASTICITY OF SUPPLY Determinants Flexibility of sellers to change prod’n Examples: Rice Home made cookies Condominiums More elastic in the long run

24. APPLICATION P increased but Q decreased Total Revenue decreases Are farmers better off? Why still adopt it? Farmers have no choice

25. APPLICATION New discovery of better strain of rice Increase in production Result in supply? Demand for rice is price inelastic Supply for rice is ..?