Elasticity https://www.youtube.com/watch?v=RP0j3Lnlazs&index=1&list=PLA2p-XeHWYwUytfsy0hz1qaUKrNIXmlTQ Demand and Supply- EconMovies #4: Indiana Jones

Elasticity of Supply and Demand Elasticity: The effect that PRICE has on QUANTITY demanded or supplied when PRICE changes. Focus on price Elasticity allows economists to examine how responsive consumers or producers are to price changes. Inelastic: Price has a small effect on consumers. Products are usually necessities. Elastic: Price has a larger effect on consumers. Products are usually wants. Usually go for a cheaper option if favorite product got too expensive. We have demand elasticity and supply elasticity. Based on our current definition of elasticity, what do you think the definition of demand elasticity is? Supply elasticity?

Elasticity of Supply and Demand Demand elasticity: How and why quantity demanded changes with price. consumers are highly sensitive to price change for elastic goods consumers are insensitive to price change for inelastic goods Supply Elasticity: How and why quantity supplied changes with price. Elastic goods are flexible and can be produced quickly Inelastic goods take time and not flexible

Graphing Elasticity Graphs can show the elasticity of a product Steep slopes show inelasticity Shallow slopes show elasticity Graph two points to find elasticity: Initial price and quantity NEW price and quantity **Keep in mind that demand is a downward sloping curve and supply is an upward sloping curve**

Factors that Affect Demand Elasticity Availability of substitutes: Products with more substitutes are more elastic. Products with none or very few substitutes are more inelastic. Price vs. income: Depending on your income, prices may or may not affect you. Necessity vs. luxury: Necessities are considered inelastic. Time: Time is needed to adjust to a price change and can greatly affect elasticity. Gas as more elastic product. Milk as an example of an inelastic good: Does not have close substitutes, thus people are willing to buy it even if price goes up. More money you have, the less price can affect you. Some goods may be inelastic or elastic to you depending on how much you make.

Factors that Affect Supply Elasticity Availability of inputs: Difficulty in acquiring inputs can slow down production. Mobility of inputs: How easily products can moved to where they are needed for production Storage capacity: Ability to store goods for production. Is the product easy to store? Or is it difficult? Answers to those questions will affect elasticity. Time: Time is needed to adjust to a price change and can greatly affect elasticity. A product that was previously inelastic can become more elastic as time goes on.

Prices More real world situations

Prices Bring Markets to Balance Market Price: The price that willing consumers pay to a willing producer for the sale of a good or service. Market Price is found by looking at consumer and producer interactions. Consumers send signals to producers about whether a product is priced too high or too low.

What Happens When the Price isn’t “Right”? Disequilibrium: Formed when market price is set above or below the equilibrium price Leads to excess demand or excess supply Excess Supply – Supply exceeds demand. Price is too high Excess Demand – Demand exceeds supply. Price too low

Think-Pair-Share How do you think excess demand and excess supply can be solved? First, think to yourself what those ways might be. Then, pair with a buddy and share what your thoughts were. Finally, be prepared to share with the class.

Excess Supply ---> Surplus Excess surplus To get back to equilibrium, price would need to go down insert think pair share slide before this

Excess Demand ---> Shortages To get back to equilibrium, price would need to rise

How Price is Affected by Demand Shift New market

How Price is Affected by Supply Shift

What if Both Shift? New equilibrium is found Can have numerous outcomes

What do the Shifts Tell Us? Think-Pair-Share What do you think the shifts tell us (Hint: There’s 3 things) jot down your thoughts then share with a buddy

What do the Shifts Tell Us? Changes in prices…. Tells producers how much to produce Tells producers how much to charge Shows buyer’s interest (demand) for a product Prices give incentives---> encourages producers to produce more to make a profit Allows markets to adjust to changing conditions Able to respond to global issues able to use resources efficiently

Think-Pair-Share When the government decides that prices are too high or too low, it gets involved in 2 ways. What do you think those ways are? Try and think of real world examples if you can.

What Happens when the Government is Involved? The government will get involved when it believes prices are too high or too low. Government affects prices in 2 ways: Price Ceilings: setting a MAX price Price Floor: setting a MINIMUM price It can be difficult to stop gov’t interference due to political influences from those who it benefits

Black Markets Black markets: an illegal market where goods are traded at prices or quantities higher than those set by law. They are usually created in response to government controls that can create shortages or surpluses