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Session 4– Elasticity
College of Education
School of Continuing and Distance Education
2014/2015 – 2016/2017
Session Overview
• In Session 2, we looked at the qualitative relationship
between demand and the factors that influence demand. The
relationship we studied just gave the direction in which
demand will change when the factors of demand change.
What managers are interested in more is the magnitude by
which the demand for their products will change when any of
the factors change. This is useful in making predictions for the
firm. Again, when managers change the price of their
products, it has repercussions for their revenue. It is
important for managers to identify how the demand for their
products will respond to changes in the price of their product
as this has repercussions for their revenue. This session seeks
to address all these issues.
Availability of substitutes
If a good has more substitutes PED will be higher
There are more substitutes for Coca-Cola than there are for
soft drinks
Slide 11
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Availability of substitutes
If a good has more substitutes PED will be higher
There are more substitutes for Coca-Cola than there are for
soft drinks
Expenditure share
If a commodity makes a higher fraction of his budget on a
good, the demand tends to be price-elastic
Slide 12
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Availability of substitutes
If a good has more substitutes PED will be higher
There are more substitutes for Coca-Cola than there are for
soft drinks
Expenditure share
If a commodity makes a higher fraction of his budget on a
good, the demand tends to be price-elastic
Time
The more time that passes (since price changes), the higher
the price elasticity of demand for the good will be; the less
time that passes, the lower the price elasticity of demand for
the good.
Slide 13
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 14
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 15
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 16
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 17
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 19
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 20
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 21
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 22
Agyapomaa Gyeke-Dako(PhD) 4/27/2018
Review of Last Class
Elasticity
Quantitative Demand Analysis
Slide 23
Agyapomaa Gyeke-Dako(PhD) 4/27/2018