Transcript demand - Pearland ISD

DEMAND
Chapter 4 Section 3
Elasticity of Demand
DEMAND
 Objectives:



Explain how to calculate elasticity of
demand.
Identify factors that affect elasticity.
Explain how firms use elasticity and
revenue to make decisions.
Group Work
Comp.
Toothpaste
Computers
Pencil
Coffee
Dishwashing Soap
Chalk Board
Bicycle
Sub.
Ind. Good
Section 1 Review/Quiz
1.
2.
3.
4.
5.
What is Demand?
What is the Law of Demand?
What is the Substitution Effect?
What is the Income Effect?
Demand Curve is always _____
sloping to the ______!
6. What does the Demand Schedule
and Demand Graph show?
Section 2 Review/Quiz
1.
2.
3.
4.
5.
6.
What does “Ceteris Paribus” mean?
What is the only thing that affects Change in
Quantity Demanded?
Name the 6 factors that affect Change in
Demand.
What is a complement? Give an example
What is a Substitute? Give an example
What is an Independent Good. Example
Section 2 Review/Quiz
 1. “all other things held constant”
 2.
 3.
 4.
 5.
 6.
Price
Income, Inferior Goods, Consumer Expectations,
Population, Consumer Tastes & Advertising,
Prices of Related Goods
2 goods bought and used together
goods used in place of one another
an item that is neither a substitute or complement
DEMAND
 Focus:
 List
five products that you as a student
could not live without.
 Second how would your list change if
those 5 products increased 10%, in
price, then 20%, then 35%, then 50%?
DEMAND
 Are there some goods that you would
always find money to buy, even if the
price were to rise drastically?
 Are there other goods that you would
cut back on, or even stop buying
altogether, if the price were to rise just
slightly?
DEMAND
 Economists describe the way that
consumers respond to price changes as
elasticity of demand.
 Elasticity of demand dictates how
drastically buyers will cut back or
increase their demand for a good when
the price rises or falls.
DEMAND
 Your demand for a good that will keep
you buying despite a price increase is
inelastic or relatively unresponsive to
price change.
DEMAND
INELASTIC
 Unresponsive to price changes
Price
Total Revenue
Price
Total Revenue
 Arrows move in same directions!
 Example:
Table Salt
DEMAND
 IF you buy much less of a good after a small
price increase, your demand is ELASTIC
 A consumer with highly elastic demand
for a good is very responsive to price
changes.
 Example: Garden Vegetables
DEMAND
 ELASTIC
 Price
Total Revenue
 Price
Total Revenue
 Arrows move in opposite direction
DEMAND
 UNITARY ELASTIC
 Describes demand whose elasticity has
a proportional change.
Price
Total Revenue -----
Price
Total Revenue -----
No change in Total Revenue!
DEMAND
DEMAND
 Elastic Demand
DEMAND
 Inelastic Demand
DEMAND
 Type of Elasticity

Change
Change in
Movement of
in Price
Expenditure
Price/Expenditure
Elastic
Opposite
Inelastic
Unit Elastic
Same
No Change
-------
DEMAND
 Demand of Elasticity
 Elastic Demand


Inelastic Demand


When given a change in price causes a relatively
larger change in QD.
When a given change in price causes a relatively
smaller change in QD.
Unit Elastic

When a given change in price causes a
proportional change in QD.
DEMAND
 Elastic Demand:


Original Price:
New Price:
Price
Quantity Total Revenue
$ 3.00 (2 units) = $ 6.00
$ 2.00 (4 units) = $ 8.00
 Inelastic Demand:


Original Price:
New Price:
$ 3.00 (2 units) = $ 6.00
$ 2.00 (2.5 units) = $ 5.00
 Unit Elastic:


Original Price:
New Price:
$ 3.00 (2 units) = $ 6.00
$ 2.00 (3 units) = $ 6.00
DEMAND
 Determinants of Demand Elasticity
 Can the purchase be delayed???


IF YES --- demand tends to be elastic
IF NO --- demand tends to be inelastic
 Are adequate substitutes available???


IF YES --- demand tends to be elastic
IF NO --- demand tends to be inelastic
 Does the purchase use a large portion of income???


IF YES --- demand tends to be elastic
IF NO --- demand tends to be inelastic
DEMAND
 Inelastic Demand - - such as Insulin





Price
$ 20
$ 15
$ 10
$ 5
QD
7 units
7.5 units
7.8 units
8 units
DEMAND
 Elastic Demand – such as garden vegetables





Price
$ 20
$ 15
$ 10
$ 5
QD
3 units
7 units
17 units
25 units
DEMAND
 Utility
 A product’s
use or how much
satisfaction a person gets out of a
product.
DEMAND
 Marginal Utility
 How
much MORE a person will get out
of adding one more unit of a product.
DEMAND
 Diminishing Marginal Utility
 The
satisfaction (or utility) obtained from
consuming a good declines as more
units of the goods are consumed.