Demand Elasticity Mr. Edwards SAHS 2016.

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Presentation transcript:

Demand Elasticity Mr. Edwards SAHS 2016

Three Cases of Demand Elasticity Demand elasticity is the extent to which a change in price causes a change in the quantity demanded.

Three Cases of Demand Elasticity Demand is elastic when a change in price causes a relatively larger change in quantity demanded. Demand is inelastic when a change in price causes a relatively smaller change in quantity demanded.

Three Cases of Demand Elasticity Demand is unit elastic when a change in price causes a proportional change in quantity demanded. To measure the elasticity of demand, compare the percentage change in quantity demanded to the percentage change in price.

You may be thinking, what does this look like? What does demand elasticity look like?

Elastic Demand P Small price change D Q Large change in Quantity Demanded

Inelastic Demand P Large price change D Q Small change in Quantity Demanded

Unit Elastic Demand P Prince Change D Q Proportionate change in Quantity Demanded

In a nutshell….

Determinants of Demand Elasticity Demand is usually inelastic if consumers cannot postpone the purchase of a product. When acceptable substitutes are available for a product, demand becomes more elastic.

Determinants of Demand Elasticity Demand for purchases that require a large portion of income is generally more elastic than the demand for purchases that require a smaller amount of income.

Examples of Inelastic Demand Gasoline Salt Goods produced by a monopoly Tap water Cigarettes Necessary medical items

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Examples of Elastic Demand Gasoline from a specific station Furniture Automobiles Professional Services Airline tickets Stocks