HOW FLEXIBLE IS CONSUMER DEMAND? ELASTICITY OF DEMAND Ch 4, s3 – pages 92-98.

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HOW FLEXIBLE IS CONSUMER DEMAND? ELASTICITY OF DEMAND Ch 4, s3 – pages 92-98

WARM-UP 2 ON A SCALE OF 1 TO 10, 1 BEING LEAST AND 10 BEING MOST IMPORTANT, HOW IMPORTANT ARE THE FOLLOWING RESOURCES TO YOU AS A CONSUMER?  WATER  GASOLINE  BRUSTERS ICE CREAM  TACO BELL  YOUR HAIRDRESSER

Demand Elasticity Demand Elasticity: a measure of how changes in price causes changes in Quantity Demanded. How will a price change influence a consumer’s decision to buy? EXAMPLE: Lobster Tails  Usually priced at $12 each  Price lowered to $9 each  How will the price change impact Quantity Demanded?  Will people buy the same amount of lobster or more lobster because of the price change?  Demand Elasticity illustrates how price changes influence consumer behavior!!! 3 3

Elastic Demand 4 4 Elastic Demand : a change in price causes a large change in quantity demanded (how much of a good or service consumers purchase) EXAMPLE: MacBook Air (Apple laptop)  MacBook Air (Apple laptop) sells for $1,300  Best Buy will usually sell one MacBook Air a day  Best Buy offers the product for 15% off, reducing the price to $1,105. Best Buy sells three MacBooks before lunch the first day of the sale.

Inelastic Demand (NOT elastic) 5 5 Inelastic Demand (NOT elastic): a change in price causes LITTLE or NO CHANGE in the quantity demanded EXAMPLE: Gas Prices  Regular gas is $3.96 per gallon  Prices jump the following week to $4.15 a gallon, an increase of 5%  Sales of gasoline at Sunoco remain constant from week 1 to week 2, despite the increase in price.

General Market versus Specific Market 6 6 GENERALSPECIFIC Food Red Robin Burger and Fries Cell PhoneI-Phone College DegreeHarvard Diploma ShoesNike Air Jordan 2012 Deluxe

Determining Demand Elasticity 7 Determinants of Demand 1. Can the purchase be delayed? 2. Are adequate substitutes available? 3. Does the purchase use a large portion of income?

Is your demand Elastic or Inelastic? 8 CARBMWIce Cream College Degree House / Apt Can purchase be delayed? Are substitutes available? Does the purchase use a lot of income? Elastic or inelastic

Total Receipts or Total Revenue: Price x Quantity Sold 9 9 Price of T- Shirts Quantity Sold Total Receipts $1015$150 $1513$195 $2011$220 $2510$250 Would this business owner make more money by raising t-shirt prices? Is consumer demand Elastic or Inelastic?

Total Receipts or Total Revenue: Price x Quantity Sold 10 Price of BagsQuantity SoldTotal Receipts $2530$ 750 $3520$ 700 $4516$ 720 $5511$ 605 Would this business owner make more money by raising prices of bags? Is consumer demand Elastic or Inelastic?