1. A measure of how consumers respond to price changes
Elasticity of Demand 3.3
Are there some products you would continue to buy, even if the price were to rise dramatically?
Are there some products you would stop buying even if the price just increased slightly?
A measure of how consumers respond to price changes

2. Inelastic Elastic Relatively unresponsive to price changes
Very responsive to price changes
Elastic

3. Factors Affecting Elasticity
Inelastic
Availability of Substitutes
Few substitutes, you might buy it no matter what
Favorite band, life saving medication
Lots of substitutes, can easily but something else
Elastic

4. Factors Affecting Elasticity
Relative Importance (How much of your budget you spend on it)
If you spend a lot of your income on a good, demand is elastic

5. Factors Affecting Elasticity
Necessities v. Luxuries
Varies greatly person to person
Necessity=always buy no matter what
Inelastic

6. Factors Affecting Elasticity
Change over time
When price changes, people need time to change their spending habits (don’t always respond quickly) In the short term
Demand become more elastic over time
Inelastic

7. Elasticity < 1 = demand is inelastic Elasticity > 1 = demand is elastic Elasticity = 1 = Unitary elastic

9. Elasticity Affects Revenue
Total Revenue: amount of money the company receives by selling its goods
Determined by price and quantity sold
You own a pizza stand, how do you increase your total revenue?
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12. Elasticity Affects Revenue
If demand is elastic, raising the price might decrease revenue
If demand is inelastic, price and total revenue move in the same direction
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