IV.

COMPUTATION OF ELASTICITY OF DEMAND AND SUPPLY

1. QUANTITY DEMANDED

Quantity demanded is the amount of a good that buyers are willing and able to buy. The
firms quantity demanded for the years 2014-2016 are as follow:

Year Quantity Demanded for the Current Year

2014 31
2015 10
2016 21
Table 4.1 Quantity Demanded for the years 2014-2016

There are many variables that affect the number of products that buyer consumes during a
given year. Of these variables, three were chosen to be used to compute for the elasticity of
demand, these are: selling price, number of buyers, and number of competitors.

A. SELLING PRICE
Year Selling Price for the Current Year
2014 59,246.32
2015 62,125.50
2016 60,753.48
Table 4.2 Quantity Demanded for the years 2014-2016

To compute for the elasticity of demand in relation to the selling price of the goods, the
formula below will be used:
% in Quantity Demanded
Price Elasticity of Demand =
% in Selling Price

The computations for the elasticity of demand are as follows:

2014-2015
| (10-31)/[(10-31/2)] |
Price Elasticity of Demand =
| (62,125.50-59,246.32)/ [(62,125.50+59,246.32)/2] |

| 1.024390244 |
Price Elasticity of Demand =
| 0.047443962 |

Price Elasticity of Demand = 21.5916

 Price
Price Elasticity of Demand (2014-2015)
62,500.00
2015 (10, 62,125.50)
62,000.00

61,500.00

61,000.00

60,500.00

60,000.00
2014
59,500.00 (31, 59,246.32)
59,000.00
0 5 10 15 20 25 30 35
Quantity Demanded
Figure 4.1 Population Elasticity of Demand for 2014-2015

The price elasticity of demand for the period of 2014-2015 is 21.5916 because the change
in quantity demanded is greater than the change in price. It means that the change in price made
the customers buy less. According to the law of demand, the buyer wants lower price; so if there
is an increase in price, there is decrease in demand. Since furniture are not necessity goods, the
buyer may wait until the price will become lower.

2015-2016
| (21-10)/ [(21+10)/2] |
Price Elasticity of Demand =
| (60,753.48-62,125.50)/ [(60,753.48+62,125.50)/2] |

| 0.709677419 |
Price Elasticity of Demand =
| 0.02233124 |

Price Elasticity of Demand = 31.7796

 Price Price Elasticity of Demand (2015-2016)
62,200.00 2015 (10, 62,125.50)
62,000.00
61,800.00
61,600.00
61,400.00
61,200.00
61,000.00 2016
60,800.00 (21, 60,753.48)

60,600.00
0 5 10 15 20 25
Quantity Demanded
Figure 4.2 Population Elasticity of Demand for 2015-2016

During 2015-2016, there is a price elasticity of 31.7796 because during this period the
change in quantity demanded is higher than the change in price. The change in demand for this
period was because of the decrease in price, unlike the other period the change in demand was
because of increase in price. In conclusion, the customers react negatively to price change.

B. NUMBER OF BUYERS
The number of buyers is represented by the total population of Naga City as of that year.
Year Population for the Current Year
2014 191, 596
2015 196,003
2016 200,511
Table 4.3 Total population of Naga City for the years 2014-2016

To compute for the elasticity of demand in relation to the total population of Naga City,
the formula below will be used:

% in Quantity Demanded
Population Elasticity of Demand =
% in Total Population
 The computations for the elasticity of demand are as follows:
2014-2015
| (10-31)/[(10-31/2)] |
Population Elasticity of Demand =
(196,003-191,596)
| 196,003+191,596 |
[ ]
2
| (1.0244) |
Population Elasticity of Demand =
| (0.0227) |

Population Elasticity of Demand = 45.13

Population Population Elasticity of Demand (2014-2015)

196,500
196,000 2015 (10, 196,003)
195,500
195,000
194,500
194,000
193,500
193,000
192,500
2014
192,000 (31, 191,596)
191,500
191,000
0 5 10 15 20 25 30 35
Quantity Demanded
Figure 4.3 Population Elasticity of Demand for 2014-2015

For the years 2014-2015, a 102.44% decrease in quantity demanded and a 2.27% increase
in the total population of Naga resulted in an elasticity of 45.13. These two variables are positively
related wherein an increase in one variable will result to an increase in the other variable, and vice
versa. However, in this case, the quantity demanded decreases even if there is an increase in the
total population which represents the number of buyers. This situation did not manifest the law of
demand which may be due to fortuitous events like typhoons that affects the demand of buyers for
the product during these period.
2015-2016
|(21-10)/[(21+10)/2)]|
Population Elasticity of Demand =
200,511-196,003
| 200,511+196,003 |
[ ]
2
| 0.7097 |
Population Elasticity of Demand =
| 0.0227 |

Population Elasticity of Demand = 31.26

Population
Population Elasticity of Demand (2014-2015)
201,000
2016 (21, 200,511)
200,500
200,000
199,500
199,000
198,500
198,000
197,500
197,000
196,500
196,000 2015 (10, 196,003)
195,500
0 5 10 15 20 25
Quantity Demanded
Figure 4.4 Population Elasticity of Demand for 2015-2016

For the years 2015-2016, a 70.97% increase in quantity demanded and a 2.27% increase in
the total population resulted in an elasticity of 31.26. This means that the increase in the total
population resulted to an increase in the number of goods that buyers consume in the market.
During this period, the law of demand is observed.
 Population Elasticity of Demand for 2014-2016

201,000 2016 (21,

200,000 200511)
199,000
198,000
197,000
2015 (10,
196,000
196003)
195,000
194,000
193,000 2014
192,000 (31, 191596)
191,000
0 5 10 15 20 25 30 35
Figure 4.5 Population Elasticity of Demand for 2014-2016

In the individual graphs, we can see that the demand curve has an upward and downward
slope. Normally, demand curve is represented by a downward sloping curve due to the law of
demand which states that an increase in 1 factor would result to an increase on the other factor.
However, in this illustration, the other curve is upward sloping since the law of demand was not
observed during that year. This is because the quantity demanded and the total number of
population are indirectly or negatively related that is, as one variable increases, the other variable
decreases. When the two individual graphs are combined, the result will be the graph above.

C. NUMBER OF COMPETITORS
Year Number of Competitors
2014 19
2015 20
2016 21
Table 4.4 The total number of Furniture shops in Naga City as of years 2014-2016

To compute for the elasticity of demand in relation to the number of competitors, the
formula below will be used:
% in Quantity Demanded
Competitors Elasticity of Demand =
% in Annual Number of Competitors
 The computations for the elasticity of supply are as follows:
2014-2015
| (10-31)/[(10+31)/2] |
Competitors Elasticity of Demand =
20+19
| (20-19)/[ 2 ] |

| (1.0244) |
Competitors Elasticity of Demand =
| (0.0513) |

Competitors Elasticity of Demand = 19.97

Competitors Elasticity of Demand (2014-2015)

20.2

20 2015 (10, 20)

Number of Competitors

19.8

19.6

19.4

19.2
2014
19
(31, 19)
18.8
0 5 10 15 20 25 30 35
Quantity Demanded

Figure 4.6 Competitors Elasticity of Demand for 2014-2015

For the years 2014-2015, a 102.44% decrease in quantity demanded and a 5.13% increase
in the number of competitors resulted in an elasticity of 19.97. These two variables (number of
competitors and quantity demanded) are negatively related an increase in one variable will yield
to a decrease in the other variable, and vice versa. In this period, the quantity demanded is very
responsive to the small increase in the number of competitors, since there was a great decrease in
the number of products that consumers demanded. During this period, the variables are negatively
related.
2015-2016
| (21-10)/[(21+10)/2] |
Competitors Elasticity of Demand =
21+20
| (21-20)/[ 2 ] |

| 0.7097 |
Competitors Elasticity of Demand =
| 0.0488 |

Competitors Elasticity of Demand = 14.54

Competitors Elasticity of Demand (2015-2016)

21.2

21 2016 (21, 21)

Number ofCompetitors

20.8

20.6

20.4

20.2

20 2015 (10, 20)

19.8
0 5 10 15 20 25
Quantity Demanded

Figure 4.7 Competitors Elasticity of Demand for 2015-2016

For the years 2015-2016, there is an increase of 70.97% in quantity demanded and a 4.88%
increase in number of competitors which resulted in an elasticity of 14.54. These two variables
(number of competitors and quantity demanded) are negatively related an increase in one
variable will yield to a decrease in the other variable, and vice versa. However, in this case, the
increase in number of competitors led to an increase in the number of goods that consumers
demanded in the market, this means that the quantity demanded for this period is not much affected
by a change in the number of competitors.
 Competitors Elasticity of Demand
21.5

21 2016 (21, 21)

Number of Competitors

20.5

20 2015 (10, 20)

19.5

2014
19
(31, 19)

18.5
0 5 10 15 20 25 30 35
Quantity Demanded

Figure 4.8 Competitors Elasticity of Demand for 2014-2016

In the individual graphs, we can see that the demand curve has an upward and downward
slope. The quantity demanded and the number of competitors are inversely or negatively related
an increase in one of the variables will result to a decrease of the other variable. In this case, the
downward slope is a result of a negatively related variables for the year 2014-2015 while the
upward slope is a result of a positively related variables for the year 2015-2016.
2. QUANTITY SUPPLIED

Quantity supplied is the amount of a good that sellers are willing and able to sell. The
firms quantity supplied for the years 2014-2016 are as follow:

Year Quantity Supplied for the Current Year

2014 31
2015 10
2016 21
Table 4.5 Quantity Supplied for the years 2014-2016

There are many variables that affect the number of products the firm can produce during a
given year. Of these variables, three were chosen to be used to compute for the elasticity of supply,
these are: selling price of the goods, technology used, and input price of raw materials.

A. PRICE
Year Selling Price for the Current Year
2014 59,246.32
2015 62,125.50
2016 60,753.48
Table 4.6 Quantity Supplied for the years 2014-2016

To compute for the elasticity of supply in relation to the selling price of the goods, the
formula below will be used:
% in Quantity Supplied
Price Elasticity of Supply =
% in Selling Price

The computations for the elasticity of supply are as follows:

2014-2015
| (10-31)/[(10-31/2)] |
Price Elasticity of Supply =
| (62,125.50-59,246.32)/ [(62,125.50+59,246.32)/2] |

| 1.024390244 |
Price Elasticity of Supply =
| 0.047443962 |

Price Elasticity of Supply = 21.5916

 Price
Price Elasticity of Supply (2014-2015)
62,500.00
2015 (10, 62,125.50)
62,000.00

61,500.00

61,000.00

60,500.00

60,000.00
2014
59,500.00 (31, 59,246.32)
59,000.00
0 5 10 15 20 25 30 35
Quantity Supplied
Figure 4.9 Population Elasticity of Supply for 2014-2015

The price elasticity of supply for the period of 2014-2015 is 21.5916 because the change
in quantity supplied is greater than the change in price. According to the law of supply, the supplier
wants lower price; so if there is an increase in price, there is increase in supply.

2015-2016
| (21-10)/ [(21+10)/2] |
Price Elasticity of Supply =
| (60,753.48-62,125.50)/ [(60,753.48+62,125.50)/2] |

| 0.709677419 |
Price Elasticity of Supply =
| 0.02233124 |

Price Elasticity of Supply = 31.7796

 Price Price Elasticity of Supply (2015-2016)
62,200.00 2015 (10, 62,125.50)
62,000.00
61,800.00
61,600.00
61,400.00
61,200.00
61,000.00 2016
60,800.00 (21, 60,753.48)

60,600.00
0 5 10 15 20 25
Quantity Supplied
Figure 4.10 Population Elasticity of Supply for 2015-2016

During 2015-2016, there is a price elasticity of 31.7796 because during this period the
change in quantity supplied is higher than the change in price. The change in supply for this period
was because of the decrease in price, unlike the other period the change in supply was because of
increase in price. In conclusion, the supplier react positively to price change.

B. TECHNOLOGY
Technology is represented by the number of equipment and machineries used during the
production of goods during that year.
Year 2014 2015 2016
Number of E&M last year 19 21 20
Additional E&M purchased 2 1 2
E&M considered fully used - (2) -
E&M for the current year 21 20 22
Table 4.7 Number of Machineries & Equipment for the years 2014-2016

To compute for the elasticity of supply in relation to the firms technology, the formula
below will be used:
% in Quantity Supplied
Technology Elasticity of Supply =
% in No. of Machineries & Equipment
 The computations for the elasticity of supply are as follows:
2014-2015
| (10-31)/[(10+31)/2] |
Technology Elasticity of Supply =
| (20-21)/[(20+21)/2] |

| (1.0244) |
Technology Elasticity of Supply =
| (0.0488) |

Technology Elasticity of Supply = 20.99

Technology Elasticity of Supply (2014-2015)

21.2
2014 (31, 21)
21
20.8
Technology

20.6
20.4
20.2
20 2015 (10, 20)
19.8
0 3 6 9 12 15 18 21 24 27 30 33
Quantity Supplied

Figure 4.11 Technology Elasticity of Supply for 2014-2015

For the years 2014-2015, a 102.44% decrease in quantity supplied and a 4.88% decrease
in the number of machineries and equipment of the firm resulted in an elasticity of 20.99. Since
these two variables are positively related, an increase in one variable will result to an increase in
the other variable, and vice versa. The decrease in the number of products the firm produced during
that period is due to the insufficient factor of production in this case, the firms machineries and
equipment needed to fully maximize the goods they are willing and able to supply.

2015-2016
| (21-10)/[(21+10)/2] |
T.E. of Supply =
| (20-22)/[(20+22)/2] |

| 0.7097 |
T.E. of Supply =
| 0.0952 |

T.E. of Supply = 7.45

 Technology Elasticity of Supply (2015-2016)
22.5
2016 (21, 22)
Technology 22
21.5
21
20.5
20 2015 (10, 20)
19.5
0 3 6 9 12 15 18 21 24
Quantity Supplied

Figure 4.12 Technology Elasticity of Supply for 2015-2016

For the years 2015-2016, a 70.97% increase in quantity supplied and a 9.52% increase in
the number of machineries and equipment of the firm resulted in an elasticity of 7.45. This means
that the increase in the number of machineries and equipment of the firm resulted to an increase in
the number of goods the firm is able to supply the market. During this period, the firm was able to
properly utilize its machineries and equipment which enabled them to produce more goods.

Technology Elasticity of Supply

22.5
2016 (21, 22)
22
Technology

21.5
2014 (31, 21)
21
20.5
2015 (10, 20)
20
19.5
0 3 6 9 12 15 18 21 24 27 30 33
Quantity Supplied

Figure 4.13 Technology Elasticity of Supply for 2014-2016

In the individual graphs, the supply curve is upward sloping. This is because the quantity
supplied and the number of equipment and machineries used by the firm are directly or positively
related if one of the variables will increase, the other variable will also increase. In this case, as
the number of equipment and machineries used by the firm increases, the quantity supplied also
increases; on the other hand, if the number of equipment and machineries used by the firm
decreases, the quantity supplied will also decrease. When the two individual graphs are combined,
the result will be the graph above. The shape of the supply curve in this graph is a convex parabola.
This is because the two variables fluctuated during the three-year period the number of
equipment and machineries used by the firm decreased in 2015, which caused a decrease in
quantity supplied; while in 2016 the number of equipment and machineries used by the firm
increased, resulting in an increase in quantity supplied.

C. INPUT PRICE
Year Input Price for the Current Year
2014 42,576.13
2015 45,701.11
2016 45,161.90
Table 4.8 Input Price for the years 2014-2016

To compute for the elasticity of supply in relation to the firms input prices, the formula below
will be used:
% in Quantity Supplied
Input Price Elasticity of Supply =
% in Annual Input Price

The computations for the elasticity of supply are as follows:

2014-2015
| (10-31)/[(10+31)/2] |
Input Price Elasticity of Supply =
| (45,701.11-42,576.13)/[45,701.11+42,576.13)/2] |

| (1.0244) |
Input Price Elasticity of Supply =
| 0.0708 |

Input Price Elasticity of Supply = 14.47

 Input Price Elasticity of Supply (2014-2015)
46000
2015 (10, 45701.11)
45500
45000
Input Price

44500
44000
43500 2014
43000 (31, 42576.13)
42500
42000
0 5 10 15 20 25 30 35
Quantity Supplied

Figure 4.14 Input Price Elasticity of Supply for 2014-2015

For the years 2014-2015, a 102.44% decrease in quantity supplied and a 7.08% increase in
the annual input price resulted in an elasticity of 14.47. Since these two variables are negatively
related, an increase in one variable will yield to a decrease in the other variable, and vice versa.
The quantity supplied for this period is very responsive to the small increase in the annual input
price of the raw materials used by the firm, since there was a great decrease in the number of
products the firm produced.

2015-2016
| (21-10)/[(21+10)/2] |
Input Price Elasticity of Supply =
| (45,161.90-45,701.11)/[(45,161.90+45,701.11)/2] |

| 0.7097 |
Input Price Elasticity of Supply =
| 0.0119 |

Input Price Elasticity of Supply = 59.49

 Input Price Elasticity of Supply (2015-2016)
45800
45700 2015 (10, 45701.11)
45600
Input Price

45500
45400
45300 2016
45200 (21, 45161.9)
45100
0 3 6 9 12 15 18 21 24
Quantity Supplied

Figure 4.15 Input Price Elasticity of Supply for 2015-2016

For the years 2015-2016, a 70.97% increase in quantity supplied and a 1.19% decrease in
the annual input price resulted in an elasticity of 59.49. The decrease in the annual input price led
to a great increase in the number of goods the firm is able to supply the market, since the quantity
supplied for this period is very responsive to a small change in the annual input price of the raw
materials used by the firm.

Input Price Elasticity of Supply

46000 2015 (10, 45701.11)
45500 2016 (21, 45161.9)
45000
Input Price

44500
44000
43500
43000 2014
(31, 42576.13)
42500
42000
0 3 6 9 12 15 18 21 24 27 30 33
Quantity Supplied

Figure 4.16 Input Price Elasticity of Supply for 2014-2016

In the individual graphs, the supply curve is downward sloping. This is because the quantity
supplied and the input price of raw materials are inversely or negatively related if one of the
variables will increase, the other variable will decrease. In this case, as the input price increases,
the quantity supplied decreases, and vice versa. When the two individual graphs are combined, the
result will be the graph above. The shape of the supply curve in this graph is a concave parabola.
This is because the two variables fluctuated during the three-year period the input prices
increased in 2015, which caused a decrease in quantity supplied; while in 2016 the input prices
decreased, resulting in an increase in quantity supplied.