Elasticity.

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Presentation transcript:

Elasticity

Elasticity of Demand Extent to which a change in price causes a change in the quantity demanded Elastic Change in price causes a large change in quantity Inelastic Change in price causes a relatively smaller change in quantity demanded

Elasticity of Demand Inelastic Unit Elastic Change in price causes a relatively smaller change in quantity demanded Unit Elastic Change in price causes a proportional change in quantity

Profits Elastic Price Increase, what happens? Inelastic

Determinants of Demand Elasticity (What makes a product elastic or inelastic) Can the purchase be delayed? Are adequate substitutes available? Does the purchase use a large portion of income?

Elasticity of Supply Unit (Proportional) Quantity supplied responds to a change in price Elastic Change in price=larger quantity brought to mkt Inelastic Change in price=smaller change in quantity supplied Unit (Proportional)

Determinants of Supply Elasticity If a firm can adjust to new prices quickly= Elastic If a firm’s adjustment take longer=supply inelastic

How is it Different From Demand Substitutes=no effect Delay purchase=no effect Portion of Income=no effect