DEMAND ELASTICITY DEMAND ELASTICITY: extent to which changes in price cause changes in quantity demanded.

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Presentation transcript:

DEMAND ELASTICITY DEMAND ELASTICITY: extent to which changes in price cause changes in quantity demanded.

DEMAND ELASTICITY Demand is ELASTIC when a small change in price causes a large change in quantity demanded. Demand is INELASTIC when a given change in price causes a relatively smaller change in quantity demanded.

WHAT DETERMINES ELASTICITY? Is it a NEED or a LUXURY? luxury – elastic need – inelastic Are decent substitutes available? Yes – elastic, No – inelastic 3. Does the purchase use a large portion of income? Yes – elastic, No - inelastic

Specific Market vs. General Market Exxon Gasoline vs. Gasoline

PREDICT THE DEMAND ELASTICITY 1. Funeral Services 9. Cigarettes 2. Milk (Babies) 10. China (fancy stuff) 3. Fresh tomatoes 11. potatoes 4. Movie tickets 12. drugs(drug addict) 5. Expensive cars 13. electricity 6. Butter 14. gasoline 7. Housing 15. clean water 8. Physician services 16. insulin