1. Elasticity

2. Elastic Demand Price Elasticity of Demand
Explains how the demand for a good will change with a change in price.
What determines how elastic demand for a good will be?
Availability of substitutes
Importance of the product in a consumer’s budget
Time period allowed for adjustment

3. Perfectly Elastic Demand
What good would fit into this category?
Infinite substitutes
No difference between products
Farmer John’s wheat harvest
Very Rare

4. Perfectly Inelastic Demand
What good would fit into this category?
No substitutes
Poncho’s at a rainy football game
Sweatshirts at a suddenly cold baseball game.
Very rare

5. Elastic Demand This is what you usually get Almost always a substitute
People adjust in time

6. Elastic Supply Price Elasticity of Supply
Explains how the supply will change with a change in price.
What determines how elastic supply will be?
Time
Market-run (Time period so short that supply is fixed)
Short-run (Plant capacity is fixed. Supply can vary from zero, to full capacity)
Long-run (Additions to capacity possible. Nothing is fixed)

7. Calculating Elasticity of Demand
If the absolute value is:
Greater than 1 – Elastic
Less than 1 – Inelastic
Equal to 1 – Unit Elastic

8. Calculating Elasticity of Supply
If the value is:
Greater than 1 – Elastic
Less than 1 – Inelastic
Equal to 1 – Unit Elastic