Elasticity

ELASTICITY 

Elasticity is a measure of a variable's sensitivity to a change in another variable, most commonly this sensitivity is the change in price relative to changes in other factors. It assesses the change in consumer demand as a result of a change in a good or service's price (Hayes,2021).

Demand Elasticity

The reaction or response of the buyers to changes in price of goods and services (Fajardo, 1990).  Elasticity of demand can be determined by the reaction of the consumers or buyers, if there is a change in price that causes to demand less or more of the good, the demand is “elastic”. In contrary, if the change brings almost no change or no change at all then the demand is “inelastic”.

Types of Demand Elasticity

Elastic Demand. When the change in price results to a greater change in quantity demanded. Under this situation the elastic coefficient is greater to one (1). It means that the consumers or buyers are very sensitive to the change of price. Example of commodities are; electronic gadgets such as camera, television and smart phones which are not very important.

Inelastic Demand. This means a change in price results to a lesser change in quantity demanded. It is when the elasticity coefficient is less than one (1). The consumers or buyers are not sensitive to the change of the price because the commodities are essential to them.  Example are clothing and shelter.

Unitary Elastic Demand. This means that a change in price would result to an equal change in quantity demanded. The elastic coefficient is equal to one (1). The reaction of the consumers or buyers or to the quantity demanded is similar to the change of the price. These types of commodities are semi-essential goods.

Perfectly Elastic Demand. No change in price existing. However, there is an infinite change in quantity demanded. When the elastic coefficient equals infinity. The demand is directly tied to the price of the commodity. There isn’t really any real-life commodity to be considered. This is essential to economic analysis.

Perfectly Inelastic Demand.  This means that a change in price creates no change in quantity demanded.  It is when elasticity coefficient equals zero. Example of this, is during emergency situation or pandemic where vaccines are important regardless of the price. 

Determinants of Price Elasticity of Demand

The availability of substitutes. Once the price of a product or commodity increase the people tend to look for substitute, this makes the demand “elastic”. However, if there is no substitute commodity available, it makes the demand “inelastic.

Income increase in proportion or the price. The quantity of demand will not change if income increase same with the price of the commodity. The demand for essential goods like sugar and salt shall remain as “inelastic.”

The Number of Uses of a Commodity.  For example, milk has several uses. If the price of the milk increase it will be used only for essential purposes such as feeding the children. If the price of milk decrease, it would be utilized to other uses such as preparation of cakes and sweets.

Time. If the time is long enough to substitute the commodity demand tends to be elastic. The longer the period, the more it is easy to both consumers and producers to adjust. 

PRICE ELASTICITY OF DEMAND

The price elasticity of demand can be measured by dividing the percentage change in the quantity of the demand by the percentage change in the price of the product. 

Elasticity of Supply

Supply elasticity refers to the reaction or response of the sellers/producers to price change of goods (Fajardo, 1990). It establishes a quantitative relationship between quantity of supply and the price of a commodity.

Types of Supply Elasticity.

Elastic Supply. A change in price results to a greater change in quantity supplied. It is evident to this situation that the producers are sensitive to the change of price. This are the commodity which can be easily produced by manufacturing firms.

Inelastic Supply. A change of price results to a lesser change in quantity supplied.  The producers are not sensitive to change of price. Example of this type are the goods that cannot be produced immediately like agricultural products.

Unitary Supply. A change in price results to an equal change in quantity supplied.

Perfectly elastic supply.  Without change in price, there is an infinite (without limit) change in quantity supplied. There is no real-life example.

Perfectly inelastic supply.  When the price change, there is no change in quantity supplied. Examples are products that have limited supply such land area, it is fixed regardless of price. 

Determinants of Supply Elasticity

Time. It is evident that agricultural product requires time to adjust its production, from planting to harvesting crops, this may take months or even years which makes it inelastic. However, the manufacturing industries, can usually adjust their output that makes it elastic.

The Nature of the Good. There are four (4) factors of production, classified to fixed factors such land and capital and variable factors such labor and management. If the factors of production can be easily transferred from the production of one good or commodity to that another, the supply will be elastic. For instance, a farmer can easily transfer from growing palay to another crop like corn.

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