Transcript Elasticity of Demand

Elasticity of Demand
Measure of how consumers react
to a change in price
Inelastic Demand
• An increase in price will NOT greatly affect
the demand for that product.
Elastic Demand
• An increase in price WILL greatly affect
the demand for that product
Factors that affect elasticity
•
Does the product have substitutes
Y= Elastic
N=Inelastic
• Importance - % of your budget
- expensive vs. inexpensive
expensive- elastic
cheap-inelastic
• Necessity vs Luxury (needs vs wants)
need-inelastic
want-elastic
Which item is more Elastic?
a. 6 pack of cola or a ten speed bicycle
b. A school t-shirt or a school yearbook
c. Medical services for a badly cut hand or
medical services for a runny nose
d. Cheeseburger or air conditioning in
Arizona in the summer
e. Air conditioning in AZ this summer or Air
conditioning in AZ over the next few
summers
Answers
a.
b.
c.
d.
e.
10 speed bicycle
School t-shirt
Runny nose
Cheeseburger
A/C next few
summers
Reason
a. Expensive
b. Many Subs
c. Many subs/not a
need
d. Many subs
e. Time to plan/subs