Chapter 4 Section 3 It’s Elastic Time to do the slide…

Demand Elasticity The way quantity demanded responds to changes in price In other words: Will something move on the demand curve if the price increases or decreases? Can be Elastic or Inelastic Unit Elastic

Elastic Demand If price of something goes down, people buy more Responsive to change in price Ex: Big Macs Price decreases from $3 - $2 (33%) Quantity demanded goes from 2 to 4 (100%) % change in quantity demanded larger than % change in price

Inelastic Demand If price of something goes down, people buy same amount Not responsive to price EX: Toothpicks Price drops from $3 to $2 (33%) Quantity demanded goes from 12 to 15 (25%) % change in quantity demanded smaller than % change in price

Unit Elastic Demand % change in quantity demanded = percentage change in price Ex: 5% drop in price = 5% increase in quantity demand 5% increase in price = 5% decrease in quantity demand

Figuring out Elasticity of Demand Demand Elastcity = % change in Quantity demanded % change in Price A result of greater than 1 is elastic A result of less than 1 is inelastic A result of 1 is Unit Elastic

Practice Problems Price of toothpaste rises from $2 to $3. (50% increase). Customers buy 9% fewer tubes of toothpaste Result? Price of Energy Bar rises from $2 to $3. Customers buy 80% fewer bars Result?

The point? You run your own business and want to raise revenues. What are your options? Stay open longer Advertise Raise prices What would happen if your product is inelastic? Elastic?

What makes something elastic or inelastic? Read page

Elasticity of Supply Assignment: Read pages 124 – 125 Explain: What supply elasticity is. What elastic supply is What inelastic supply is What unit elastic supply is What causes the supply elasticty