Transcript Elasticity of Demand

Elasticity of Demand
• Remember the law of demand says that if a
price of a product goes up then the quantity
demanded will go _________
down
• And vice versa
• Sometimes price changes will really change
demand and other times price changes don’t
affect demand as much
• A buyer’s responsiveness to a price change
(whether demand really changes or doesn’t
change very much) is called
____________________________
Elasticity of Demand
3 Factors That Determine A
Product’s Elasticity
1. Degree of need (want or luxury item)
2. Availability of substitutes
3. Expense (does it take a large portion of your
income or a small one)
Products can have either elastic or inelastic
demand
I.
When a price change causes a big change
in the quantity demanded, then that product
hasElastic
_________
________.
Demand
Reasons why products have elastic
demand (a,b,c on your outline)
a. It’s a luxury item
b. The product has many substitutes
c. The product tends to be expensive
Examples--• Name brand clothing
• Luxury sports car
$ 4
2
• i-phone
2
•
Q
D
10
The demand curve for an elastic product tends
to be flat.
II.
When price change causes very little change in the quantity
Demand
demanded, then that product has Inelastic
_______ __________
a. Need it!
b. The product has few, if any, substitutes
c. It is cheap
Examples?
•
Gasoline
•
Electricity
•
Salt
The demand curve for an inelastic demand product tends to be
____________________
steep
ELASTIC OR INELASTIC?
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Milk
MP3 players
Plastic surgery
Electricity
Cocaine
Coffee
College education
Gasoline
Gas at your favorite
station
• Cigarettes
• High speed internet
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Inelastic
Elastic
Elastic
Inelastic
Inelastic
Inelastic
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Inelastic
Elastic
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• elastic