Elasticity- Week Four. Objectives Explore examples of elastic/ inelastic situations Determine how consumers respond to price changes Examine the current.

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Presentation transcript:

Elasticity- Week Four

Objectives Explore examples of elastic/ inelastic situations Determine how consumers respond to price changes Examine the current economy and determine how consumer react to price changes Discuss how factors (income, tastes, preferences, branded goods) affect elasticities

Elasticities of Demand Perfect Elastic Perfect Inelastic Relative Elastic Relative Inelastic Unitary Elastic

How do YOU respond to Price Change? Perfect inelastic? – No change in demand (ie/ prescription drugs, etc.) Relative inelastic? –Change in demand is less than the change in price (ie/ branded goods, Rolex) Perfect elastic? – 100% demand change (ie/ gasoline, generic water bottle, etc.) Relative elastic? – Change in demand is greater than the change in price (ie/ food items, clothing, etc.) Unitary elastic? - % Change in price= same % change in demand

Examples... One of a kind Porshe McDonalds food Generic grapes Apple computer Generic can foods Starbucks coffee Cigarettes

Today’s Economy Today’s economy= unemployment, higher prices, sales, etc. …will consumers change their demand when prices change? Why? Some consumers are more cautious with their spending Depends on the goods or services

Income- Factor More money, more demand for certain items (possibly move from elastic to inelastic) Or…the opposite…. More money, less demand for certain items (inferior goods)

Tastes and Preferences- Factor Tastes and preferences can be a factor elasticity of demand Certain goods and services can transition from inelastic to elastic of demand depending on the good or service (generic vs. branded names) Addition to a good? – Perfectly inelastic Familiar to a good (inelastic) vs new good (elastic)

Branded Goods- Factor Inelastic demand Price Changes? Still demand it? Factors that can affect elasticities of branded goods: % price change Unemployment Life Changes Tastes & Preferences Marketing

Others.... Think of examples in which you have a relative elastic demand, relative inelastic demand, perfect elasticity of demand, perfect inelasticity of demand. Why? What factors will cause them to change?

Conclusion There are many cases of elastic/ inelastic situations Consumers respond to price changes in different ways The current economy is a determinant to how consumer react to price changes Factors (income, tastes, preferences, branded goods) affect elasticities

The End