Transcript Demand Elasticity

Elasticity
When the price of an item
changes, the change in
demand or supply can vary a
little or a lot.
Standard Correlation
o
SSEMI3 The student will explain how
markets, prices, and competition influence
economic behavior.

c. Define price elasticity of demand and
supply.
Demand Elasticity
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The amount that quantity demanded
changes with a change in price – price effect
Indicates a buyer’s eagerness to buy a good
or service
Large price effect = elastic
Small price effect = inelastic
Price Elasticity of Demand for Milk
and Cola – an example
$3.00
$2.50
.
$2.00
$1.50
Demand for Milk
.
.
$1.00
for
. Demand
cola
$ .50
0
0
20
40
60
80
100
120
Examples
Elastic – Flat screen TV, New cars, expensive
items, CDs, designer clothes
Inelastic – milk, diapers, gas, tobacco, insulin,
prescription drugs
P
Inelastic – steep
slope – more
vertical
Q
Copy the graphs
Elastic – gradual slope
– more horizontal
P
Q
Determinants of Demand Elasticity
3 Questions
Yes = Elastic No= Inelastic
1.Can the Purchase be delayed?
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If consumers can’t postpone purchase it will be
inelastic – ex. Toilet paper, eggs, milk
People may react differently if they can buy the items
elsewhere for cheaper – they could delay buying them
2. Are Adequate Substitutes Available?

If adequate substitutes are available, consumers can
take adv. of the best price – this makes demand elastic
3. Does the Purchase use a large portion of
income?

If the amount of income used is large = elastic demand –
ex – computers, cars, vacations
Elastic or Inelastic?
 Salt
 New
Cars
 Pork Chops
 European Vacation
 Insulin
 Gasoline
 Eggs
 Tattoos
Elasticity of Supply


Large price effect = elastic supply
Small price effect = inelastic supply

Example: # of chickens provided by chicken
producers can increase greatly when the price of
chickens goes up. This elastic response
happens because ranchers can quickly increase
the number of chickens being raised without big
increases in marginal costs. A small increase in
chicken prices can then bring about a big
increase in the number of chickens offered for
sale.
Elastic Supply (gradual slope)
 Copy
Graph
7
6
5
4
10
20
30
40
Chickens produced
50
60
Inelastic – Steep slope
 Copy
Graph
Price per
barrel
70
60
50
40
100
200
300
400
Stock of Gasoline
500
600
Determining Elasticity of Supply
– How easy is it for the
company to respond to a change in price?
 Quick and Easy Response – Elastic
 Inability to Respond (too time consuming
and expensive)- Inelastic
 Responsiveness
Examples
– DVDs, garden tools, agricultural
products, bottled water, cookies
 Inelastic – custom made furniture, handmade quilts, speed-boats, automobiles,
electrical energy, gasoline (things that are
complex to produce)
 Elastic
Write this down on your notes…
 My
product is……
 Because…
(Answer the 3 questions…)