Demand THursday, February 3rd.

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Presentation transcript:

Demand THursday, February 3rd

Elasticity of Demand Defined: A term used to describe how consumers react to price changes in the marketplace

Elasticity of Demand Recall what the “law of demand” says Elastic When the price of a good goes down, demand goes up, and when the price of a good goes up, demand goes down Not all goods and services follow this trend Elastic When price goes up or down, demand goes down or up Follows the law of demand Inelastic When price goes up, demand stays the same Can you think of any examples?

Elastic vs Inelastic Curves

What Determines Elasticity? Substitute Goods or Services If there is no substitute for a good, the demand will likely be inelastic Example: Gasoline Proportion of Income Let’s say that you spend a percentage of your income on a hobby. If prices go up for parts of that hobby, you will likely not purchase as much. Demand for that product is elastic. If a good costs a small percentage of your income, it is likely to be inelastic Necessities vs Luxuries For needs, demand is usually inelastic For wants, demand is usually elastic

Elastic or Inelastic? Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Mountain Bike Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Gasoline Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Ice Cream Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Braces Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Table Salt Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Matches Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Movie Ticket Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Medication Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Soda Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Eating at a restaurant Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Tiebreaker! Which is more elastic?

Elastic or Inelastic? Mountain Bike Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Gasoline Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Ice Cream Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Braces Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Table Salt Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Matches Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Movie Ticket Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Medication Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Soda Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

Elastic or Inelastic? Eating at a restaurant Are there substitutes available? Yes: Elastic, No: Inelastic What percentage of your income does it use? Large: Elastic, Small: Inelastic Is it a necessity or a luxury? Luxury: Elastic, Necessity: Inelastic

On your sheet of paper, please respond to the following questions: Exit Slip On your sheet of paper, please respond to the following questions: In your own words, what does elastic mean? What does inelastic mean? Why might producers want to know a product’s elasticity?