Transcript Chapter 3, Section 3

SECTION 3
Elasticity of Demand
Essential Question:
 Explain the term “Elasticity of Demand,
select two different products (one with
elastic demand and one with inelastic
demand) and justify (using evidence from
these notes) why each product has the type
of demand that it does; explain what
information the total revenue test provides.
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SECTION 3
Elasticity of Demand
What is elasticity of demand?
•This is the measure of how much
Demand changes (increase/decrease)
whenever price is increased or decreased.
SECTION 3
Elasticity of Demand
Difference between elastic and
inelastic demand:
 elastic demand—when a small change in a
product’s price results in a significant
change in the quantity demanded
 inelastic demand—when a change in a
product’s price has only a slight effect on the
quantity demanded
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SECTION 3
Elasticity of Demand
Elastic Demand (three conditions):
 Elastic demand—tends to occur when
 The product is not a necessity
 There are readily available substitutes
 The product’s cost represents a large overall
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portion of a consumers income.
 When looking at a demand curve, Elastic demand
shows a steep change as the curve moves from left
to right. Copy graph 1 in your notes!!!
SECTION 3
Elasticity of Demand
Inelastic Demand (three conditions)
 Inelastic demand—tends to occur when
 The Product is a necessity
 Few to no available substitutes
 The products purchase price represents a small
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portion of a consumers income.
 When looking at a demand curve, Inelastic demand
shows a gradual change as the curve moves from
left to right. Copy graph 2 in your notes!!
SECTION 3
Elasticity of Demand
Total Revenue Test.
•Revenue is determined by multiplying
the price of an item by the Q.D. for that
price (Using a demand schedule)
•Revenue is measured as a dollar figure
•A Total Revenue test tells you:
• The price that makes you the most money
• The degree of change in revenue between two
prices
SECTION 3
Elasticity of Demand
GO BACK TO CN 3.1. do now!
•Find the demand schedule that we wrote
into our notes in Chapter 3, Section 1
• For each price, multiply the price by the quantity
demanded and write this number in the space I
asked you to leave underneath.
• Determine, at which price I should have sold the
water at (which price I make the most
REVENUE)