Elasticity of Demand The degree to which price effects demand.

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Presentation transcript:

Elasticity of Demand The degree to which price effects demand

Inelastic Demand Demand that is not very sensitive to a change in price

Elastic Demand Demand that is very sensitive to a change in price

Factors That Effect Demand 1) Availability of Substitutes Is there a lack of substitutes or a wide choice of substitutes? 2) Relative Importance How much of your budget do you spend on the good? The higher the jump in price, the more you will have to adjust your purchases.

Factors That Effect Demand 3) Necessities Versus Luxuries Is the good a need or a want? 4) Change over Time Consumers need time to react to a price change and change their spending habits. Demand tends to become more elastic over time

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