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WARM-UP:

WARM-UP:. Imagine that Tylenol goes on sale. What happens to the demand for Advil? Create a demand schedule (you set the prices/quantities) Graph the curve and the demand shift that would occur. (Label: price, quantity, D1, and D2). Objective: Explain and graph the elasticity of demand

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WARM-UP:

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  1. WARM-UP: Imagine that Tylenol goes on sale. What happens to the demand for Advil? Create a demand schedule (you set the prices/quantities) Graph the curve and the demand shift that would occur. (Label: price, quantity, D1, and D2)

  2. Objective: Explain and graph the elasticity of demand Guiding Question: Why don’t people buy more flu shots when they go on sale? 2.3: Elasticity of Demand

  3. Review of Terms • Substitute goods are two goods that serve the same purpose and compete for the same buyers, such as: Tylenol and Advil. • Complementary goods are two items that are frequently bought and used together. For example: ketchup and fries. • What examples of each can you generate?

  4. Elasticity of Demand • Elasticity of demand shows how much the demand changes when the price changes. • Elasticity = the relationship between the % change in Qdand % change in price If something is elastic it is stretchy and changes a lot based on surroundings.

  5. Elastic Demand • Demand is elastic when the quantity demanded changes more than the price (% change in Qd > % change in price) • Elastic products have lots of substitutes that can easily be replaced Soda is an example of elastic demand… What would you do if 7Up was 10 cents cheaper than Sprite?

  6. Inelastic Demand • Demand is inelastic when the prices changes more than the demand. (% change in price > % change in Qd) • Inelastic goods have few, if any, substitutes Gas is considered inelastic… why? What other examples can you think of?

  7. Unit-Elastic Demand • Demand is unit-elastic when the change in demand is proportionate to the change in price (% change in Qd = % change in price.) What goods or services do you think could be unit-elastic?

  8. How Elastic is Our Demand? • Price changes by 17% and the demand changes by 5% • The price decreases by 17% and the demand goes up by 27% • Price increases by 14% and the Qd goes down by 14% as well • Price went up by 5% and the quantity demanded decreased by 11% • The price increased by 10% but the demand only shifted down by 2% • When Kroger raised the price on broccoli by 6%, they saw a 6% decrease in broccoli sales • Gas prices rose 25% last summer, but sales remained steady, decreasing by just 4% • When Walgreens had a sale on CoCo Puffs (10% cheaper), the quantity demand for that cereal tripled!

  9. Demand Elasticity and Entrepreneurship • If this good/service went on sale, how much do you think the market demand would change? Why? (Use vocabulary in your answers!) • As a store owner, would you recommend a sale on this item? Why or why not?

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