Lesson 10 - Elasticity of Demand and Supply

  • Lesson 10 - Elasticity of Demand and Supply

    Learning Goals: By the end of this lesson you will be able to

    • •Calculate price elasticities of demand and supply
    • Factors affecting the Elasticity
    •  Making Graphs

    Success Criteria: You will be able to understand elasticity  of demand and supply and the factors affecting it. You will also understand the graphs.


    • Perfect (or pure) competition
       A rare market structure characterized by many sellers (selling exactly the same product) and many buyers, no barriers to entry into the market for new firms, and perfect knowledge of prices (so there are no price differences and no individual can influence them). 

      Price elasticity of demand (PED)
       An expression of how much more or less consumers will buy of a product if its price changes. 

      Price elastic
       If the quantity of a good or service bought changes a lot when price rises or falls, it is said to be price elastic. 

      Price inelastic
       If the quantity of a good or service bought does not change much when price rises or falls, it is said to be price inelastic. 

      Sales revenues
       The amount of money realized from selling goods or services in the normal operations of a company in a specified period. 

    • Discussion Forum - Topic

      For which of the following products would demand be elastic? Inelastic? Unitary? Explain why in each case. Products: (a) beef, (b) steak, (c) public transportation, (d) gasoline, (e) pencils, and (f) housing.


      A seller finds out that the PED coefficient for the product being sold is 1.5. Would it be better to lower the price or raise the price to gain more sales revenue? How might the seller’s sales strategy change if the PED coefficient for the product were 0.8?


    • Answer to discussion forum


      (a) Beef: Demand is unitary or slightly elastic because other meats or fish can substitute for it if prices rise.
      (b) Steak: Demand is elastic because it is a non-essential meat and other substitutes are available if prices rise.
      (c) Public transportation: Demand is inelastic because it is an essential service in most urban areas.
      (d) Gasoline: Demand is inelastic in the short run because it is essential for motorists; it is more elastic in long run as motorists try to drive less, buy smaller cars, and use more public transit, if possible.
      (e) Pencils: Demand is inelastic because it is an essential item and a small part of consumer budgets.
      (f) Housing: Demand is elastic because house purchases are a large percentage of a consumer’s budget.



      A 1.5 coefficient indicates that the item is elastic. A lower selling price would increase sales revenue. A 0.8 coefficient indicates that the item is inelastic. Maintaining the price is essential because sales revenue falls when price falls. If it is possible to do so, raising price would increase the seller’s sales revenue.

    • Lesson Exit Card Questionnaire

      Students to complete this after you've finished all activities/tasks in today's lesson.