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 2 types 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 Demand Elasticity 1. Can the purchase be delayed? 2. Are adequate substitutes available? 3. Does the purchase use a large portion of income? If NO = usually inelastic If YES = usually elastic

Determinants of Elasticity Gas from Exxon Gas in general Needed Medicine oranges New shoes Utility service Table salt Can the Purchase be Delayed? Are adeq. Substitutes available? Does the purchase use a large part of income? Type of elasticity

Page 110 Identifying Key Terms: 1-8 Please write out the whole word, not just the letter Reviewing the Facts: 1, 2, 4 and 5 Thinking Critically: 1 Applying Economic Concepts: 2