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Elasticity - Coggle Diagram
Elasticity
Measurement of Interpretation
Inelastic
0<Ed<1
An increase in price causes a smaller % fall in demand
The curve will be steeper
People dont react to the price change/ demand are inelasticity
Elastic
Ed>1
An increase in prices causes a bigger % fall in demand
The curve will be flatter
E.g: Luxury good or goods which has many substitute
People react much to the change of price/ demand are elastic
Unitary Elastic
Ed=1
Unitary Elasticity is when there is an equally proportional change in demand, following a change in price. Eg: Normal goods.
Perfectly Elastic
Ed = infinity ( 9.999999)
The price will affect the quantity demanded
Perfectly Inelastic
Ed=0
Any changes in price will not affect the quantity demanded.
RELATIONSHIP TOTAL REVENUE (TR) and PEd
TR = price x qty
Profit = TR - TC
If demand is elastic
Then, % change in P less than % change in Dd
Therefore, small % rise in P, Larger % fall in Dd = TR decrease
Therefore, small % fall in P, Larger % rise in Qd = TR increase
If demand is Inelastic
Then, % change in P more than % change in Qd
Therefore, Large % rise in P, small fall in Qd = TR increase
Therefore, large % fall in P, smaller % rise in Qd = TR decrease
Type of elasticity
Demand
Price (PEd)
measure responsiveness of qty demand to a change in price
Ad = % change in qty / % chnage in price
% change in qty = Q1 - Q0 / Q0 x 100
% change in price = P1 - P0 / P0 x 100
GRAF DALAM SLIDE
Income (PEi)
Cross (PExy)
Supply
Definition
measure the sensitivity of one variables (qty demand) to change in another variable (price)