1. Elasticity
Demand and Supply- EconMovies #4: Indiana Jones

2. Elasticity of Supply and Demand
Elasticity: The effect that PRICE has on QUANTITY demanded or supplied when PRICE changes.
Focus on price
Elasticity allows economists to examine how responsive consumers or producers are to price changes.
Inelastic: Price has a small effect on consumers. Products are usually necessities.
Elastic: Price has a larger effect on consumers. Products are usually wants. Usually go for a cheaper option if favorite product got too expensive.
We have demand elasticity and supply elasticity. Based on our current definition of elasticity, what do you think the definition of demand elasticity is? Supply elasticity?

3. Elasticity of Supply and Demand
Demand elasticity: How and why quantity demanded changes with price.
consumers are highly sensitive to price change for elastic goods
consumers are insensitive to price change for inelastic goods
Supply Elasticity: How and why quantity supplied changes with price.
Elastic goods are flexible and can be produced quickly
Inelastic goods take time and not flexible

4. Graphing Elasticity Graphs can show the elasticity of a product
Steep slopes show inelasticity
Shallow slopes show elasticity
Graph two points to find elasticity:
Initial price and quantity
NEW price and quantity
**Keep in mind that demand is a downward sloping curve and supply is an upward sloping curve**

5. Factors that Affect Demand Elasticity
Availability of substitutes: Products with more substitutes are more elastic. Products with none or very few substitutes are more inelastic.
Price vs. income: Depending on your income, prices may or may not affect you.
Necessity vs. luxury: Necessities are considered inelastic.
Time: Time is needed to adjust to a price change and can greatly affect elasticity.
Gas as more elastic product.
Milk as an example of an inelastic good: Does not have close substitutes, thus people are willing to buy it even if price goes up.
More money you have, the less price can affect you. Some goods may be inelastic or elastic to you depending on how much you make.

6. Factors that Affect Supply Elasticity
Availability of inputs: Difficulty in acquiring inputs can slow down production.
Mobility of inputs: How easily products can moved to where they are needed for production
Storage capacity: Ability to store goods for production. Is the product easy to store? Or is it difficult? Answers to those questions will affect elasticity.
Time: Time is needed to adjust to a price change and can greatly affect elasticity. A product that was previously inelastic can become more elastic as time goes on.

7. Prices
More real world situations

8. Prices Bring Markets to Balance
Market Price: The price that willing consumers pay to a willing producer for the sale of a good or service.
Market Price is found by looking at consumer and producer interactions. Consumers send signals to producers about whether a product is priced too high or too low.

9. What Happens When the Price isn’t “Right”?
Disequilibrium: Formed when market price is set above or below the equilibrium price
Leads to excess demand or excess supply
Excess Supply – Supply exceeds demand. Price is too high
Excess Demand – Demand exceeds supply. Price too low

10. Think-Pair-Share
How do you think excess demand and excess supply can be solved?
First, think to yourself what those ways might be.
Then, pair with a buddy and share what your thoughts were.
Finally, be prepared to share with the class.

11. Excess Supply ---> Surplus
Excess surplus
To get back to equilibrium, price would need to go down
insert think pair share slide before this

13. Excess Demand ---> Shortages
To get back to equilibrium, price would need to rise

15. How Price is Affected by Demand Shift
New market

16. How Price is Affected by Supply Shift

17. What if Both Shift? New equilibrium is found
Can have numerous outcomes

18. What do the Shifts Tell Us?
Think-Pair-Share
What do you think the shifts tell us (Hint: There’s 3 things)
jot down your thoughts then share with a buddy

19. What do the Shifts Tell Us?
Changes in prices….
Tells producers how much to produce
Tells producers how much to charge
Shows buyer’s interest (demand) for a product
Prices give incentives---> encourages producers to produce more to make a profit
Allows markets to adjust to changing conditions
Able to respond to global issues
able to use resources efficiently

20. Think-Pair-Share
When the government decides that prices are too high or too low, it gets involved in 2 ways. What do you think those ways are?
Try and think of real world examples if you can.

21. What Happens when the Government is Involved?
The government will get involved when it believes prices are too high or too low.
Government affects prices in 2 ways:
Price Ceilings: setting a MAX price
Price Floor: setting a MINIMUM price
It can be difficult to stop gov’t interference due to political influences from those who it benefits

22. Black Markets
Black markets: an illegal market where goods are traded at prices or quantities higher than those set by law.
They are usually created in response to government controls that can create shortages or surpluses