1. Elasticity of Demand

2. Elasticity
The cause and effect relationship that shows how a dependent variable (quantity demanded) responds to a change in an independent variable (price)

3. 2 Ways to study Elasticity
1. Graphs
2. Goods

4. Elastic Demand: When the Change in demand is larger than the change in price

5. Inelastic Demand: When the Change in demand is less than the change in price

6. Unit Elastic Demand: When the change in quality demanded is the SAME as the change in price

7. Total Expenditures
Times the Price by the Quantity Demanded

8. Elastic Demand: When the Change in demand is larger than the change in price

9. Inelastic Demand: When the Change in demand is less than the change in price

10. Unit Elastic Demand: When the change in quality demanded is the SAME as the change in price

11. Determinates of Demand Elasticity
1. Can the Purchase be Delayed?
Yes: Elastic
No: Inelastic

12. Are there Adequate Substitutes?
Consumers can switch back and forth
Beef vs Chicken
Gas Stations
Gas itself
Yes: Elastic
No: Inelastic

13. Does the Purchase use a large portion of income
Large : Elastic
Small: Inelastic