Transcript Elasticity of Demand

Elasticity of Demand
Chapter 4 Section 3
Demand Elasticity
Demand Elasticity: the extent to which a
change in P causes a change in the Q
demanded
3 types
 1. Elastic = small change in P causes a
large change in Q demanded

– example = fresh fruit

2. Inelastic = a change in P causes a
smaller change or no change in Q
demanded
– Example: table salt or gasoline

3. Unit = % change in P = % change in
Q demanded
Total Expenditures Test

Multiply the price by the quantity
Elastic
Unit
Inelastic
Change in
Price
Change in
Expenditure




No change

Specific vs. General Market
Examples:
 Specific: Exxon Gas Station
– If P increases, people would go somewhere
else, therefore it is elastic (flexible)

General: All Gas Stations
– If P increases, people will have to pay the
increase, therefore it is inelastic (nonflexible)
Determinants of Demand Elasticity
If 2 or more NO = usually inelastic
 If 2 or more YES = usually elastic

Determinants of Elasticity
Gas from
Exxon
Gas in
general
Needed
Medicine
yes
Can the
Purchase be
Delayed?
Are adeq.
Substitutes
available?
Fresh
Oranges
no
yes
Does the
purchase use
a large part
of income?
no
Type of
elasticity
Elastic
New
shoes
Utility
service
Rent or
Mortgage