1. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.21 LESSON 4.2 Elasticity of Demand  Compute the elasticity of demand, and explain its relevance.  Discuss the factors that influence elasticity of demand. Objectives

2. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.22 LESSON 4.2 Elasticity of Demand  elasticity of demand  total revenue Key Terms

3. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.23 Computing the Elasticity of Demand  Elasticity of demand measures the percentage change in quantity demanded divided by percentage change in price. Elasticity of demand = Percentage change in quantity demanded Percentage change in price

4. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.24 Computing the Elasticity of Demand  Elasticity values  Elasticity and total revenue

5. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.25 814202632 Millions of pizzas per week $15 12 9 6 3 0 Price per pizza The Demand for Pizza D

6. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.26 Determinants of Demand Elasticity  Availability of substitutes  Share of consumer’s budget spent on the good  A matter of time  Some elasticity estimates

7. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.27 507595100 Millions of gallons per day 0 $1.25 1.00 Price per gallon D y D m D w Demand Becomes More Elastic Over Time

8. © SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.28 Selected Elasticities of Demand Product Short Run Long Run Electricity (residential)0.11.9 Air travel0.12.4 Medical care and hospitalization0.30.9 Gasoline0.41.5 Movies0.93.7 Natural gas (residential)1.42.1