Elasticity
Economics (4th Quarter Long Test Reviewer)
*Application of Demand and Supply: Government and Price Control (in-case kailangan)
Price Control – Refers to the fixing of prices by the government. By doing so, it creates shortage or surplus.
Price Ceiling – A maximum price at which a good can be sold.
Price Floor – Minimum price buyers are required to pay for a good.
Elasticity
The price elasticity of demand is computed as the percentage change in quantity demanded divided by the percentage change in price. That is, Price elasticity of demand=ED= Percentage change in quantity demand Percentage change in price Where: %▲D > %▲P (1) = Elastic demand %▲D < %▲P (1) = Inelastic Demand %▲D = %▲P (1) = Unit Elastic Demand
Formulas:
ED= % change in quantity demand % change in price ED= %▲D %▲P ED= Q2-Q1 Q2+Q1 2 P2 – P1 P2 + P1 2
The Market Structure
Perfect Competition
- Pure competition
- Large number of firms all producing essentially the same product.
- Assumes that firms and buyers are “ PRICE-TAKERS”
4 conditions for Perfect Competition
- Many buyers and sellers participate in the market
- Sellers offer identical products
- Buyers and Sellers are well-informed about products (perfect knowledge)
- Sellers are able to enter or exit the market freely
SUMMARY:
No. of firms: Many Variety of goods: None Barriers to entry: None Control over prices: No Control
* Terms
Barriers to entry: Any factor that makes it difficult to a new firm to enter a market
Start- Up costs – The expenses a firm must pay before it can begin to produce and sell goods
Commodity – A product is the same no matter who produces it
Competition- Makes the market efficient.
Monopoly
- A market dominated by a single seller
- examples: Meralco, Philippine Airlines, Philippine Long Distance Telephone Company
SUMMARY:
No. of firms: None Variety of goods: None Barriers to entry:
*Application of Demand and Supply: Government and Price Control (in-case kailangan)
Price Control – Refers to the fixing of prices by the government. By doing so, it creates shortage or surplus.
Price Ceiling – A maximum price at which a good can be sold.
Price Floor – Minimum price buyers are required to pay for a good.
Elasticity
The price elasticity of demand is computed as the percentage change in quantity demanded divided by the percentage change in price. That is, Price elasticity of demand=ED= Percentage change in quantity demand Percentage change in price Where: %▲D > %▲P (1) = Elastic demand %▲D < %▲P (1) = Inelastic Demand %▲D = %▲P (1) = Unit Elastic Demand
Formulas:
ED= % change in quantity demand % change in price ED= %▲D %▲P ED= Q2-Q1 Q2+Q1 2 P2 – P1 P2 + P1 2
The Market Structure
Perfect Competition
- Pure competition
- Large number of firms all producing essentially the same product.
- Assumes that firms and buyers are “ PRICE-TAKERS”
4 conditions for Perfect Competition
- Many buyers and sellers participate in the market
- Sellers offer identical products
- Buyers and Sellers are well-informed about products (perfect knowledge)
- Sellers are able to enter or exit the market freely
SUMMARY:
No. of firms: Many Variety of goods: None Barriers to entry: None Control over prices: No Control
* Terms
Barriers to entry: Any factor that makes it difficult to a new firm to enter a market
Start- Up costs – The expenses a firm must pay before it can begin to produce and sell goods
Commodity – A product is the same no matter who produces it
Competition- Makes the market efficient.
Monopoly
- A market dominated by a single seller
- examples: Meralco, Philippine Airlines, Philippine Long Distance Telephone Company
SUMMARY:
No. of firms: None Variety of goods: None Barriers to entry: