Elasticity of Demand Chapter 4 Section 3

Demand Elasticity Demand Elasticity: the extent to which a change in P causes a change in the Q demanded

1. Elastic = small change in P causes a large change in Q demanded 2 types of elasticity 1. Elastic = small change in P causes a large change in Q demanded example = fresh fruit 2. Inelastic = a change in P causes a smaller change or no change in Q demanded Example: gas

Specific vs. General Market Examples: Specific: Exxon Gas Station If P increases, people would go somewhere else: therefore it is elastic (flexible) General: All Gas Stations If P increases, people will have to pay the increase, therefore it is inelastic (nonflexible)

Determinants of Elasticity Gas from Exxon Gas in general Needed medicine Fresh oranges New shoes Electricity Starbucks Coffee Can the purchase be delayed? Are adeq. substitutes available? Does the purchase use a large part of income? Type of elasticity 1 2 3 If NO = inelastic If YES = elastic