Elasticity of Demand.

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Presentation transcript:

Elasticity of Demand

Elasticity The cause and effect relationship that shows how a dependent variable (quantity demanded) responds to a change in an independent variable (price)

2 Ways to study Elasticity 1. Graphs 2. Goods

Elastic Demand: When the Change in demand is larger than the change in price

Inelastic Demand: When the Change in demand is less than the change in price

Unit Elastic Demand: When the change in quality demanded is the SAME as the change in price

Total Expenditures Times the Price by the Quantity Demanded

Elastic Demand: When the Change in demand is larger than the change in price

Inelastic Demand: When the Change in demand is less than the change in price

Unit Elastic Demand: When the change in quality demanded is the SAME as the change in price

Determinates of Demand Elasticity 1. Can the Purchase be Delayed? Yes: Elastic No: Inelastic

Are there Adequate Substitutes? Consumers can switch back and forth Beef vs Chicken Gas Stations Gas itself Yes: Elastic No: Inelastic

Does the Purchase use a large portion of income Large : Elastic Small: Inelastic