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Elasticity of Demand

Elasticity of Demand. Elastic and Inelastic demand. Bell Ringer: Define these terms= Elasticity of Demand Unit Elastic Elastic Inelastic Factors Affecting Elasticity of Demand. Gas prices keep rising but we keep buying!. Gas prices keep rising but we keep buying!.

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Elasticity of Demand

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  1. Elasticity of Demand Elastic and Inelastic demand. Bell Ringer: Define these terms= Elasticity of Demand Unit Elastic Elastic Inelastic Factors Affecting Elasticity of Demand E. Napp

  2. Gas prices keep rising but we keep buying! E. Napp

  3. Gas prices keep rising but we keep buying! E. Napp

  4. Doesn’t the law of demand state that consumers buy less at higher prices? So, why are we still buying gas? E. Napp

  5. Doesn’t the law of demand state that consumers buy less at higher prices? So, why are we still buying gas? E. Napp

  6. Doesn’t the law of demand state that consumers buy less MORE at higher LOWER prices? So, why aren’t we buying MORE gas? E. Napp

  7. Elasticity of Demand • ELASTICITY OF DEMAND IS A MEASURE OF HOW CONSUMER QUANTITY CHANGES WITH PRICE • INELASTIC DEMAND: DEMAND THAT REACTS LITTLE TO A LARGE PRICE CHANGE • ELASTIC DEMAND: WHEN QUANTITY CHANGES A LOT TO A SMALL PRICE CHANGE E. Napp

  8. Think jeans. These jeans have an “inelastic” waistband. The waistband does not change if people gain weight.SO- If the PRICE changes a LOT, the QUANTITY changes a little. E. Napp

  9. Our demand for gasoline is inelastic. It only changes a little even with a price increase or decrease. E. Napp

  10. Think pants again! Sweat pants have elastic waistbands. The waist changes depending on the size of the person. SO- If the PRICE changes a LITTLE, the QUANTITY changes a lot! E. Napp

  11. Our demand for apple juice is elastic. If the price increases, we will buy less. Our demand changes. E. Napp

  12. So, why is our demand for apple juice elastic and our demand for gasoline inelastic? E. Napp

  13. What if the price is $5 ea? (qty?) $10 Price $5 Quantity 10 20 30 40 50 60

  14. What if the price is $5 ea? (50) $10 Price $5 Quantity 10 20 30 40 50 60

  15. What if the price is $10 ea? (qty?) $10 Price $5 Quantity 10 20 30 40 50 60

  16. What if the price is $10 ea? (20) $10 Price $5 Quantity 10 20 30 40 50 60

  17. $10 Price $5 Quantity 10 20 30 40 50 60

  18. What if the price is $10 ea? (qty?) $5 ea? (qty?) $15 $10 Price $5 Quantity 11 13 15 17 19

  19. $20 $15 $10 Price $5 Quantity 11 13 15 17 19

  20. E. Napp

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  22. Factors Affecting Elasticity of Demand • The following are factors that can affect the elasticity of demand: Availability of Substitutes Relative Importance Necessities Versus Luxuries Percent of Income E. Napp

  23. Substitutes Substitute orange juice for apple juice Demand is Elastic (BIG CHANGE) Medicines, other specialized NEEDS Demand= Inelastic (We pay) Helf

  24. Factors Affecting Elasticity of Demand • The following are factors that can affect the elasticity of demand: Relative Importance: Need vs. Wants Need: Inelastic Want: Elastic Necessities Versus Luxuries: Need vs Wants Necessity: Inelastic Luxury: Elastic Percent of income: We will pay if we CAN pay Low Percent: Inelastic High Percent: Elastic E. Napp

  25. However, we cannot substitute milk for gasoline. E. Napp

  26. What is this graph telling us about elasticity of demand? E. Napp

  27. Factors Affecting Elasticity of Demand • The following are factors that can affect the elasticity of demand: Availability of Substitutes Relative Importance Necessities Versus Luxuries Percent of Income Complete Chart on Page 120 for an Exit Slip E. Napp

  28. E. Napp

  29. Questions for Reflection: • State the Law of Demand. • Why is the law of demand not always true? • Define elasticity. • Provide one example of a good with inelastic demand and explain why demand for that good is inelastic. • Provide one example of a good with elastic demand and explain why demand for that good is elastic. E. Napp

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