1. Mr. Schoonover 10/02/2009

2.  Elasticity of Demand – A measure of how people change their buying patterns when their income increases

3.  Inelastic – A good that is not very responsive to price changes ◦ A price increase does not have a significant impact on how much you would buy ◦ You will always find the money to buy it  Elastic Good – A good which is very responsive to changes in price ◦ A price increase has a significant impact on how much you would buy. ◦ If price increases even a little – you buy much less

4.  Formula for Calculating Elasticity =% change in quantity demanded % change in price  If a calculation is… ◦ ≥ 1 then the demand is INELASTIC ◦ = 1 then the demand is UNITARY ◦ ≤ 1 then the demand is ELASTIC

5.  Price change - $4-$3 = 25%  Change in QD – 10-20 = 100%  100%/25% = 4  Price change - $6-$2 = 67%  Change in QD – 10-15 = 50%  50%/67% =.75

6.  Availability of Substitutes – if there is no other options, our demand is inelastic.  Example: Flight of the Conchords Tickets  Example: Playoff Tickets ◦ If there are lots of substitutes, demand is elastic.  Example: hand sanitizer  Example: pencils

7.  Relative Importance – how much of your budget you spend on an item. ◦ If you spend a lot of money on one thing, you notice it more  Example: Gas ◦ If you rarely buy something, you would hardly notice an increase in price.  Example: Shaving cream

8.  Necessities vs. Luxuries – Varies – people NEED necessities, they would like Luxuries. ◦ Necessity- inelastic ◦ Luxury - elastic

9.  Change over Time – It requires some amount of time to find a substitute for a good. ◦ Short term – inelastic ◦ Long term - elastic ◦ Example: Purchasing a car – you may buy a F-150 because gas prices are low. If price raises, you have to have some time to look for a car with better gas mileage

10.  Pull out your sheet!

11.  Total Revenue – Price x Quantity PriceQuantity $110 $28 $38 $47 $56 Total Revenue $10 $16 $24 $28 $30