1. ELASTICITY

2. Price Increase I still buy (need) Price Increase I will not buy (want)

3. Elasticity of Demand
List an item that you would buy less of if the price increased.
List an item that you would buy more of if the price decreased.
List an item that you would continue to buy, even if the increased.

4. Inelastic vs. Elastic Demand Curve

5. Elasticity of Demand
 Elasticity of Demand –how consumers will cut back or increase their quantity demanded for a product when prices rise or fall
Measures the extent to which changes in price causes changes in
quantity demanded.
Helps determine how much a price change will influence the qd of any given product

6. Elasticity of demand P P P2 P2 P1 P1 D D QD QD

7. Elastic Demand
Elastic – consumption changes drastically when a price rises or falls
A consumer is very responsive to price changes

8. Elastic Demand Curve P
115,900
40,000
10,000 D 10
100 QD

9. Inelastic Demand Inelastic - changes in price causes a
relatively small change in quantity
demanded
 Consumers continue to purchase
regardless of price change

10. Inelastic Demand CurveP
$3.00
1.50
.50 D 2 3 QD

11. Determinants of Demand Elasticity
Need vs. a Want
Medicine versus a luxury automobile
Availability of Substitutes
Pepsi/Coke, Butter/Margarine
Importance of the Product
How much you spend on a good
Table salt versus designer clothes
Time Horizon
Longer time horizon – more elastic
Gas in the short run is inelastic, but over time elastic

12. Elastic Products
Inelastic Products

13. Item
Elastic/Inelastic
Determinant
Insulin for a diabetic
Inelastic
Need/No Available
Substitutes
Heinz 57 Tomato Sauce
Elastic
Want/ Available
Food
Need
Polo Brand Clothing
Want
Cigarettes