1. Focus Question, then turn them in TODAY!
Define the Law of Demand
Define the Law of Supply
Draw the difference between a change in demand and a change in quantity demanded?
What happens if price is above equilibrium?
What happens if price is below equilibrium?
Explain the results of a tax

2. Consumers will buy more when prices go down and less when prices go up
THE LAW OF DEMAND SAYS...
Consumers will buy more when prices go down and less when prices go up
HOW MUCH MORE OR LESS?
DOES IT MATTER?

3. Elasticity shows how sensitive quantity is to a change in price.
Does not always have to be a money thing.
Temperature elasticity vs. ice cream (as the temperature goes up, people buy more ice cream).

4. 1. Elasticity of Demand Elasticity of Demand-
Measurement of consumers responsiveness to a change in price.
What will happen if price increase? How much will it effect Quantity Demanded
Who cares?
Used by firms to help determine prices and sales
Used by the government to decide how to tax
PED- compare the percentage change in Qd/ percentage change in price
If the % change in Qd > % change in P, then PED>1, ELASTIC
If the % change in Qd < % change in P, then PED<1, INELASTIC
If the % change in Qd = % change in P, then PED=1, UNIT ELASTIC

5. Inelastic Demand

6. Inelastic Demand
INelastic = Quantity 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

7. General Characteristics of INelastic Goods:
Inelastic Demand
General Characteristics of INelastic Goods:
Few Substitutes
Necessities
Small portion of income
Required now, rather than later
Elasticity coefficient less than 1
20% 5%

8. Elastic Demand

9. Elastic Demand An ELASTIC demand curve is flat!
Elastic = Quantity 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

10. General Characteristics of Elastic Goods:
Elastic Demand
General Characteristics of Elastic Goods:
Many Substitutes
Luxuries
Large portion of income
Plenty of time to decide
Elasticity coefficient greater than 1

11. 2. Price Elasticity of Supply
Elasticity of supply shows how sensitive producers are to a change in price.
Elasticity of supply is based on time limitations.
Producers need time to produce more.
INelastic = Insensitive to a change in price (Steep curve)
Most goods have INelastic supply in the short-run
Elastic = Sensitive to a change in price (Flat curve)
Most goods have elastic supply in the long-run
Perfectly Inelastic = Q doesn’t change (Vertical line)
Set quantity supplied