Week 5: Interactive activity

5.1 Learning Outcomes

1. Explain the concept of elasticity
2. Use formulas to compute the elasticity of demand and supply
3. Explain the differences between inelastic, elastic, and unitary elastic demand
4. Discuss factors that affect the price elasticity of demand
5. Use formulas to compute the income elasticity of demand and the cross-elasticity of demand
6. Identify the impact of an economic agent’s actions on the global economic environment
Elasticity refers to the degree to which a change in one economic variable (such as price or income) affects another economic variable (such as quantity demanded or supplied). It is a measure of the responsiveness of one variable to changes in another.

The elasticity of demand is calculated using the following formula:
Elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)

The elasticity of supply is calculated using the following formula:
Elasticity of supply = (Percentage change in quantity supplied) / (Percentage change in price)

Inelastic demand refers to a situation where the quantity demanded does not change significantly in response to a change in price. Elastic demand refers to a situation where the quantity demanded changes significantly in response to a change in price. Unitary elastic demand refers to a situation where the percentage change in quantity demanded is equal to the percentage change in price.

Factors that can affect the price elasticity of demand include the availability of substitutes, the proportion of income that is spent on the good or service, and the necessity of the good or service.

The income elasticity of demand is calculated using the following formula:
Income elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in income)

The cross-elasticity of demand is calculated using the following formula:
Cross-elasticity of demand = (Percentage change in quantity demanded for one good) / (Percentage change in price of another good)

The actions of economic agents, such as individuals and businesses, can have an impact on the global economic environment. For example, if a business expands its operations internationally, it can increase the demand for goods and services in the countries where it operates, potentially affecting the local and global economy. Similarly, the decisions of individuals and households about how to spend their income can affect the demand for goods and services, which can in turn impact the global economy.
5.2 Action Required:

Read the following to prepare for this week:

Survey of Economics, Chapter 4: Elasticity: A Measure of Responsiveness

Study Notes: Week 5: Elasticity

http://www.economist.com/: This publication and website provide up-to-date economic news and analysis. As an Economist Student you are advised to keep reading this publication.

Watch Presentation for Chapter-4 from the link below and answer following questions.

https://lms.seu.edu.sa/bbcswebdav/pid-8624953-dt-content-rid-984508_1/xid-984508_1 Click for more options – Alternative Formats

Videos:

Watch the following Video and answer the question below.