1. Chapter 3 Elasticity of Demand

2. Elasticity – the degree to which changes in price affect the quantity demanded by consumers Elastic Goods - Small change in price causes a major, opposite change in demand. Inelastic Goods - Change in price causes little impact in the quantity demanded.

3. Elastic Goods Goods tend to be elastic if: - There are available substitutes. Ex. pan dulce -Product is a large portion of consumer’s income – houses or cars (think SUVs) -Item is a luxury good *Elastic goods tend to have a flat or almost horizontal demand curves

4. Goods or services tend to be inelastic if: - The product is a necessity – insulin - There are few or no readily available substitutes - gasoline - Product’s cost represents a small proportion of consumer’s income - salt *Inelastic goods tend to have steep or almost vertical demand curves Inelastic Demand