1. Elasticity of Demand Economics

2. What Does it Mean? Economists: How consumers respond to price changes. Economists: How consumers respond to price changes. In other words: In other words: Elasticity of demand is how much buyers will increase or decrease their demand for a good when the price rises or falls Elasticity of demand is how much buyers will increase or decrease their demand for a good when the price rises or falls

3. Inelastic vs. Elastic Inelastic – Inelastic – unresponsive change in demand when price changes Elastic – Elastic – responsive change in demand when price changes Examples: Examples: clothing, food

4. Price Range Elasticity of demand can vary greatly at different price rangesExamples: Inelastic Magazine rises 50% : $.20 to $.30 Demand shouldn’t change much Elastic Magazine rise 50%: $4.00 to $6.00 Some people may refuse to pay the $2.00 increase

5. Factors Affecting Elasticity 1. Availability of Substitutes Few substitutes – Demand still goes up with price increasesExample: Tickets to concerts, sporting events

6. Factors 2. Relative Importance How much can you afford to spend on a product? 3. Necessities vs. luxuries Needs vs. wants

7. Factors 4. Change over time Can’t find substitutes in short term In long term demand becomes elasticExamples: Gasoline, ice