Chapter 4.3 notes Demand Elasticity

Demand Elasticity HOW MUCH a change in P causes a change in Qd Elastic – when a change in P causes a relatively larger change in Qd. Ex: green beans, corn, tomatoes, etc.

cont’d Inelastic – a change in P causes a relatively smaller change in the quantity demanded. Ex: table salt, gas Unit Elastic – a given change in price causes a proportional change in quantity demanded.

Calculating Demand Elasticity Demand Elasticity = %ΔQd %ΔP If the numerator is > denominator = elastic If the denominator is > numerator = inelastic

Determinants of D Elasticity Necessities vs. Luxuries – Necessities usually inelastic Substitutes goods/services - If no sub, usually inelastic Portion of income – if uses a large portion of income, usually elastic

Rank the following items from most elastic to least elastic Honda Accord Beef European vacation Salt Dijon mustard steak

Results…? European Vacation Honda Accord Steak Dijon mustard Beef salt