Lesson Notes By Weeks and Term - Senior Secondary 2

Elasticity of demand

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Term: 1st Term

Week: 5

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Economics

Topic:-       Elasticity of demand

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

  1. Explain the meaning of elasticity of demand
  2. List and explain the types of elasticity of demand
  3. Enumerate the factors that determine the elasticity of demand

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION

TEACHER’S ACTIVITY

STUDENT’S ACTIVITY

STEP 1

INTRODUCTION

The teacher reviews the previous lesson on the factors causing a shift in the demand and supply curve

Students pay attention

STEP 2

EXPLANATION

She explains the meaning of elasticity of demand

Students pay attention and participates

STEP 3

DEMONSTRATION

She lists and explains the types of elasticity of demand. She further enumerates the factors that determine the elasticity of demand

Students pay attention and participate

STEP 4

NOTE TAKING

The teacher writes a summarized note on the board

The students copy the note in their books

 

NOTE

ELASTICITY OF DEMAND

Elasticity of Demand is the degree of responsiveness of demand to any change in the factors affecting demand. The major factors are own price, income and price of related commodities.

TYPES OF ELASTICITY OF DEMAND

i. Price Elasticity of Demand

ii. Income Elasticity of Demand

iii. Cross Elasticity of Demand

Price Elasticity of Demand

Price elasticity of demand refers to the degree of responsiveness of demand to little changes in prices of goods and services.

 Types of Price Elasticity

  1. Elastic demand: Demand is elastic if a little change in price brings about a greater change in the quantity of a commodity demanded.

       

           Elastic or fairly Elastic Demand curve.

       2. Inelastic Demand: Demand is inelastic if a larger change in price of commodities leads to little or no change in the quantity demanded.

        

       3. Unity or Unitary Elasticity of Demand: Demand is unitary if a change in price leads to an equal change in the quantity of goods demanded

      

        4. Perfectly Elastic Demand: In this curve any slight increase in price will make consumers stop buying the commodity at all, while a slight decrease in price will make the                        consumers purchase all the quantity of that commodity available.

        

         5. Perfectly Inelastic Demand: Demand is said to be perfectly inelastic of a change in price has no effect on the quantity of goods demanded.

              

Measurement of elasticity of Demand

Elasticity of demand can be measured or determined by calculating the elasticity of demand co-efficient. The formula used in calculating the elasticity of demand is;

Co-efficient of price elasticity of demand =(percentage change in Quantity Demanded)/(Percentage change in price)

Note:

If the co-efficient is more than 1, demand is elastic

If the co-efficient is less than 1, demand is inelastic

If the co-efficient is 1, elasticity of demand is unitary.

 

Example:

Given the figure below;

Price of commodity A in January = N5.00

Price of commodity A in February = N7. 00

Quantity of A bought in January = 20kg

Quantity of A bought in February = 16kg

  1. Calculate
  2. Percentage change in quantity bought (%)
  3. Co-efficient of price elasticity of demand
  4. From your answer, is the demand elastic or inelastic.
  5. How do you know this?

Commodity A

Month

Price

Quantity demanded

January

5.00

20kg

February

7.0016kg

  

 

INCOME ELASTICITY OF DEMAND

This refers to the degree of responsiveness of demand to changes in income of consumers. Income elasticity of demand is measured thus, co-efficient of income elasticity of demand = %change in quantity demand /% change in income.

TYPES OF INCOME ELASTICITY OF DEMAND

  1. Positive income Elasticity of demand. Income elasticity is said to be positive if an increase in income of consumers leads to increase in the quantity demand. This applies to normal commodities.
  2. Negative income Elasticity of Demand: if an increase in income of consumers leads to decrease in quantity of goods and services demand, income elasticity is said to be negative. In such a situation, demand falls as income of consumers rises. This applicable to inferior goods

TYPES OF INCOME ELASTICITY OF DEMAND

(i) Positive Income Elasticity: e.g Normal good

(ii) Negative Income Elasticity e.g inferior good.

 

(3) CROSS ELASTICITY OF DEMAND: This is refers to the degree of responsiveness of demand for commodity to a change in the price of another related commodity. In other words, cross elasticity of demands refers to the proportionate change in the quantity of goods (X) demand over the proportionate change in the price of another goods(Y) demanded, that as it measures how changes in the price of a commodity will affect the demand of another commodity. Cross elasticity of demand applies mainly if this is an increase in goods that have close substitutes as well as complementary goods. For example, demand for Elephant/ detergent will increase if there is an increase in the price of OMO.

MEASUREMENT OF CROSS ELASTICITY OF DEMAND

Cross elasticity of demand can be measured or calculated by using the co-efficient of cross elasticity of demand. Thus, co-efficient of cross elasticity of demand=

Percentage change in quantity demand of commodity X /percentage change in price of commodity Y

Income elasticity = %          Δ QX /% Δ PY

FACTORS THAT DETERMINES ELASTICITY OF DEMAND

1) The consumer s taste and preference

2) Existence or availability of close substitutes.

3) Income of the consumer.

4) Number of the use the commodity

5) Advertisement

6) How important the commodity is to the consumer/degree of necessity

7) One s habit.

8) Time

 

EVALUATION:    1. Define elasticity of demand

  1. List and explain the types of elasticity of demand
  2. Given the following information; price of bread in                              November = N10

                             Price of bread in December = N14

                             Quantity bought in November N40

                             Quantity bought in December = N36

  1. Calculate percentage change in price
  2. Calculate percentage on quantity bought
  3. Calculate the co-efficient of price elasticity of demand.
  4. What type of demand elasticity is this?
  5. How did you know this?

      4. State four factors that determine the elasticity of demand

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively