Transcript 4.2 Elasticity of Demand Objectives

• Learning Objective:
– Today I will be able to determine elasticity of demand
by calculating price changes in consumer goods.
• Agenda:
1.
2.
3.
4.
Learning Objective
Lecture: Ch. 4.2 Elasticity of Demand
Worksheet
Exit Slip
CONTEMPORARY ECONOMICS:
LESSON 4.2
1
Title: Ch. 4.2 Elasticity of Demand
• Elasticity:
– Consumer
responsiveness
to price change.
• Elasticity of
demand measures
the percentage
change in quantity
demanded divided
by percentage
change in price.
Elasticity of
demand
% change in quantity
demanded
%change in price
CONTEMPORARY ECONOMICS:
LESSON 4.2
2
The Demand for Pizza
Price per pizza
$15
12
9
6
3
D
0
8 14 20 26 32
Millions of pizzas per week
CONTEMPORARY ECONOMICS:
LESSON 4.2
3
Checking for Understanding
1. Pizza falls from $12 to $9—How much did it
decrease?
2. Since pizza price change, quantity demand
rose from 6 million to 14 million—How much
more was demanded?
3. Calculate % of price change & quantity
demanded.
4. Elasticity of
% change in quantity
demand=
demanded
%change in price
CONTEMPORARY ECONOMICS:
LESSON 4.2
4
– Demand is:
• Elastic if great than 1.0
• Unit elastics= 1.0
• Inelastic if between 0 and 1.0
• Lowering prices
– Lowers total revenue for each unit
sold.
– Quantity demanded increases,
which may increase total revenue
• Check for Understanding:
• So then what is the elasticity of
pizza since it’s price decreased?
CONTEMPORARY ECONOMICS:
LESSON 4.2
5
CONTEMPORARY ECONOMICS:
LESSON 4.2
6
Checkpoint: pg.112
What does the elasticity of demand measure?
The elasticity of demand measures the percentage
change in quantity demanded divided by the
percentage change in price.
Elasticity of
demand
Percentage change in quantity
demanded
Percentage change in
price
CONTEMPORARY ECONOMICS:
LESSON 3.3
7
• Determinants of
Demand Elasticity
– Availability of substitutes
• Less elastic if not many substitutes.
• More elastic if more substitutes available.
– Consumer’s budget & importance of
item
• What consumer’s are willing & able to buy
• Ex. Increase in houses, less is demanded,
more responsive.
• Ex. Less responsive to crease in paper
towels, not as important as a house.
– Time
• Need more time to find substitutes
• Ex. In 1973 & 1974, the OPEC oil cartel
raised prices of oil by 45%. At first
consumption decreased by 8%. But,
furthered decreased with more time.
– Elasticity of demand, greater at the
long-run than short-run.
CONTEMPORARY ECONOMICS:
LESSON 4.2
8
Demand Becomes
More Elastic Over Time
$1.25
1.00
Price per gallon
Dy
Dm
Dw
0
50
75
95100 Millions of gallons per day
CONTEMPORARY ECONOMICS:
LESSON 4.2
9
Selected
Elasticities of Demand
Product
Short Run
Long Run
Electricity (residential)
0.1
1.9
Air travel
0.1
2.4
Medical care and hospitalization
0.3
0.9
Gasoline
0.4
1.5
Movies
0.9
3.7
Natural gas (residential)
1.4
2.1
CONTEMPORARY ECONOMICS:
LESSON 4.2
10
Checkpoint: pg.115
What are the determinants of demand elasticity?
?
Availability of substitutes
consumer’s budget
time
Some elasticity estimates
CONTEMPORARY ECONOMICS:
LESSON 3.3
11
Exit Slip
• What is a good or service you consume? Is it
elastic, inelastic, or unit elastic? Explain how
do you know?
CONTEMPORARY ECONOMICS:
LESSON 4.2
12