Transcript Elasticity of Demand - Appoquinimink High School

 Grab the handout off the front
desk!
Today’s LEQ: How do you measure a
consumer’s responsiveness to a change in
price?
 Measures how much buyers and
sellers respond to changes in market
conditions


Measures how willing buyers are willing/able
to change buying habits in response to a price
change
Makes discussion of demand quantitative:
How does a change in price impact quantity
demanded for a given good or service?
 For example, gas prices dropped to $3.00 per
gallon – how much will this change consumer
behavior?

Demand for a g/s =
elastic if QD changes
substantially

Demand for a g/s =
inelastic if QD changes
slightly
 Your classmates will drop each item
to the ground from shoulder
height. Which item is the most
elastic/inelastic and why?
 Deflated Volleyball
 Kickball
 Phrase your answer in terms of
price and quantity demanded.


No universal rule on determining elasticity – too many social,
economic, psychological factors that come into play
A few general rules of thumb that can be helpful:
 Substitutability: more substitutes = more elastic; less substitutes =
less elastic
▪ Definition of the Market: Broad markets mean less substitutes
 Proportion of Income Spent on Product: g/s that represent higher
proportion of income = more elastic
 Luxury or Necessity? Can you go without it? More elastic
 Addictive? Habit forming? More inelastic
 Time Horizon: Short run = more inelastic; long run = more elastic

Using your understanding of the determinants of
demand elasticity, rank the following g/s in order of
most elastic to least elastic. Be prepared to defend
your placement.
 Insulin
 Cigarettes
 Running Shoes
 Granny Smith Apples
 BMW convertible
 Gas

Take out your class notes!


There are two ways… simple and complicated
(we have to know both ways )
Simple way first:
 This will give you the elasticity coefficient – the
change in QD proportionate to the change in price
 Use absolute value (eliminate (-) or (+) sign)

For example, suppose a 10% increase in the
price of an ice cream cone causes the amount
of ice cream you buy to fall by 20%. Calculate
the elasticity of demand using the simple
formula.

For example, suppose a 20% increase in the
price of tacos causes the amount of tacos you
buy to fall by 5%. Calculate the elasticity of
demand using the simple formula.
Calculate elasticity for two points on a demand
curve, point A and point B. For the sake of plugging
these points into the formula, point A = (Q1, P1) and
point B = (Q2, P2).
 A:
Price = $4
Qty = 120
 B:
Price = $6
Qty = 80



What happened to our snow day?!
Take out your “Snicker Effect” activity and be
ready to start when the bell rings.
Did the market demand for Snickers
seem to be elastic or inelastic? How do
you know?
 Were the Snicker Bars an inferior good
or normal good? How do you know?
 Which goods were complements or
substitutes? How do you know?



Add to your notes as you watch. You will be
asked to revisit your brainstorming activity
after the video. Be prepared!
http://youtu.be/4oj_lnj6pXA