Elasticity of Demand Economics.

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Presentation transcript:

Elasticity of Demand Economics

What Does it Mean? Economists: How consumers respond to price changes. In other words: Elasticity of demand is how much buyers will increase or decrease their demand for a good when the price rises or falls

Inelastic vs. Elastic Inelastic – unresponsive change in demand when price changes Elastic – responsive change in demand when price changes Examples: clothing, food

Price Range Elasticity of demand can vary greatly at different price ranges Examples: Inelastic Magazine rises 50% : $ .20 to $ .30 Demand shouldn’t change much Elastic Magazine rise 50%: $4.00 to $6.00 Some people may refuse to pay the $2.00 increase

Factors Affecting Elasticity Availability of Substitutes Few substitutes – Demand still goes up with price increases Example: Tickets to concerts, sporting events

Factors Relative Importance Necessities vs. luxuries How much can you afford to spend on a product? Necessities vs. luxuries Needs vs. wants

Factors Change over time Can’t find substitutes in short term In long term demand becomes elastic Examples: Gasoline, ice

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