ECON 01-MAR-10 OBJECTIVE: To understand the concept of Elasticity and In-Elastic Notes on Elasticity Video on Elasticity Complete Worksheet on Elasticity

ELASTICITY NOTES

ELASTICITY the relative change in an economic variable, e.g. demand, that occurs in reaction to changes in other variables, e.g. price or advertising input

INELASTIC if the quantity responses to a change in price are relatively small compared to change in price. Very few substitutes

Substitutes Competing products that can be used in place of one another; products related in such a way that an increase in price of one increases the demand for the other.

EXAMPLES—cost $4-$5 Pack

Personal financial impact The cost of a pack of cigarettes averages around $4.50 to $5, including taxes, depending on where you live. Using the lower number, a pack-a-day smoker burns through about $31.50 per week, or $1,638 per year. That's a fat house payment or a nice vacation with the family. A 40- year-old who quits smoking and puts the savings into a 401(k) earning 9% a year would have nearly $250,000 by age 70.

Gasoline—How much would you Pay?

ELECTRICITY

INSULIN---How much would you pay if you are sick?

ELASTIC GOODS If the quantity responses are relatively large, demand is described as elastic. Many substitutes

EXAMPLES OF ELASTIC GOODS PORK CHOPS----- 

CARS

VACATIONS

DEMAND----- is typically more elastic in the long run than in the short run.