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Learning Objective:

Learning Objective: Today I will be able to determine elasticity of demand by calculating price changes in consumer goods. Agenda: Learning Objective Lecture: Ch. 4.2 Elasticity of Demand Worksheet Exit Slip. % change in quantity demanded. Elasticity of demand. =. %change in price.

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Learning Objective:

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  1. Learning Objective: • Today I will be able to determine elasticity of demand by calculating price changes in consumer goods. • Agenda: • Learning Objective • Lecture: Ch. 4.2 Elasticity of Demand • Worksheet • Exit Slip CONTEMPORARY ECONOMICS: LESSON 4.2

  2. % change in quantity demanded Elasticity of demand = %change in price Title: Ch. 4.2 Elasticity of Demand • Elasticity: • Consumer responsiveness to price change. • Elasticity of demandmeasures the percentage change in quantity demanded divided by percentage change in price. CONTEMPORARY ECONOMICS: LESSON 4.2

  3. $15 12 9 Price per pizza 6 3 D 0 8 14 20 26 32 Millions of pizzas per week The Demand for Pizza CONTEMPORARY ECONOMICS: LESSON 4.2

  4. Checking for Understanding • Pizza falls from $12 to $9—How much did it decrease? • Since pizza price change, quantity demand rose from 6 million to 14 million—How much more was demanded? • Calculate % of price change & quantity demanded. • Elasticity of demand= % change in quantity demanded %change in price CONTEMPORARY ECONOMICS: LESSON 4.2

  5. Demand is: • Elastic if great than 1.0 • Unit elastics= 1.0 • Inelastic if between 0 and 1.0 • Lowering prices • Lowers total revenue for each unit sold. • Quantity demanded increases, which may increase total revenue • Check for Understanding: • So then what is the elasticity of pizza since it’s price decreased? CONTEMPORARY ECONOMICS: LESSON 4.2

  6. CONTEMPORARY ECONOMICS: LESSON 4.2

  7. Percentage change in quantity demanded Elasticity of demand = Percentage change in price Checkpoint: pg.112 What does the elasticity of demand measure? The elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. CONTEMPORARY ECONOMICS: LESSON 3.3

  8. Determinants of Demand Elasticity • Availability of substitutes • Less elastic if not many substitutes. • More elastic if more substitutes available. • Consumer’s budget & importance of item • What consumer’s are willing & able to buy • Ex. Increase in houses, less is demanded, more responsive. • Ex. Less responsive to crease in paper towels, not as important as a house. • Time • Need more time to find substitutes • Ex. In 1973 & 1974, the OPEC oil cartel raised prices of oil by 45%. At first consumption decreased by 8%. But, furthered decreased with more time. • Elasticity of demand, greater at the long-run than short-run. CONTEMPORARY ECONOMICS: LESSON 4.2

  9. $1.25 1.00 D y D m Price per gallon D w 0 50 75 95 100 Millions of gallons per day Demand Becomes More Elastic Over Time CONTEMPORARY ECONOMICS: LESSON 4.2

  10. Selected Elasticities of Demand CONTEMPORARY ECONOMICS: LESSON 4.2

  11. Checkpoint: pg.115 What are the determinants of demand elasticity? ? Availability of substitutes consumer’s budget time Some elasticity estimates CONTEMPORARY ECONOMICS: LESSON 3.3

  12. Exit Slip • What is a good or service you consume? Is it elastic, inelastic, or unit elastic? Explain how do you know? CONTEMPORARY ECONOMICS: LESSON 4.2

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