1. Ch. 4 – Demand Sec. 2 - Elasticity

2. Review with your Partners
Name the five determinants of Demand.
What is a substitute good?
What is a complimentary good?
Why do we calculate slope?
What is the relationship between price and quantity demand?
If your slope answer is 5/-25, what does it mean?
What way does the demand curve shift if there is a decrease in demand?
Name 10 college mascots.

3. Elasticity shows how sensitive quantity is to a change in price.
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4. Inelastic Demand
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5. Inelastic Demand
INelastic Demand= Demand is INsensitive to a change in price.
If price increases, quantity demanded will fall a little
If price decreases, quantity demanded increases a little.
In other words, people will continue to buy it.
20% 5%
A INELASTIC demand curve is steep! (looks like an “I”)
Examples:
Gasoline
Milk
Diapers
Chewing Gum
Medical Care
Toilet paper
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6. General Characteristics of INelastic Goods:
Inelastic Demand
General Characteristics of INelastic Goods:
Few Substitutes
Necessities
Small portion of income
Required now, rather than later
Answer x<1
20% 5%
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7. Elastic Demand
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8. Elastic Demand An ELASTIC demand curve is flat!
Elastic Demand = Demand is sensitive to a change in price.
If price increases, quantity demanded will fall a lot
If price decreases, quantity demanded increases a lot.
In other words, the amount people buy is sensitive to price.
An ELASTIC demand curve is flat!
Examples:
Soda
Boats
Beef
Real Estate
Pizza
Gold
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9. General Characteristics of Elastic Goods:
Elastic Demand
General Characteristics of Elastic Goods:
Many Substitutes
Luxuries
Large portion of income
Plenty of time to decide
Answer x>1
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10. Elastic or Inelastic? What about the demand for insulin for diabetics?
Beef-
Gasoline-
Real Estate-
Medical Care-
Electricity-
Gold-
Elastic- 1.27
INelastic - .20
Elastic- 1.60
INelastic - .31
INelastic - .13
Elastic - 2.6
What if % change in quantity demanded equals % change in price?
Perfectly INELASTIC
(Coefficient = 0)
Unit Elastic (Coefficient =1)
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11. Measuring Elasticity % change in QD %change in P
Calculate % change by taking the difference of the two numbers and divide it by the original starting number!
Example – if QD changes from 12million to 14million
and Price changes from 5 dollars to 3 dollars.
2/12 = .167 = .4175 2/