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Demand Elasticity for Consumers

Explore demand elasticity, how price changes affect buying decisions, and examples of elastic and inelastic demand. Learn about determinants of demand and how businesses can maximize revenue through pricing strategies. Discover if consumer demand is elastic or inelastic.

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Demand Elasticity for Consumers

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  1. ELASTICITY OF DEMANDCh 4, s3 – pages 92-98 How flexible is consumer demand?

  2. WARM-UP • ON A SCALE OF 1 TO 10, 1 BEING LEAST AND 10 BEING MOST IMPORTANT, HOW IMPORTANT ARE THE FOLLOWING RESOURCES TO YOU AS A CONSUMER? • WATER • GASOLINE • BRUSTERS ICE CREAM • TACO BELL • YOUR HAIRDRESSER

  3. Demand Elasticity • Demand Elasticity: a measure of how changes in price causes changes in Quantity Demanded. How will a price change influence a consumer’s decision to buy? • EXAMPLE: Lobster Tails • Usually priced at $12 each • Price lowered to $9 each • How will the price change impact Quantity Demanded? • Will people buy the same amount of lobster or more lobster because of the price change? • Demand Elasticity illustrates how price changes influence consumer behavior!!! 3

  4. Elastic Demand • Elastic Demand : a change in price causes a large change in quantity demanded (how much of a good or service consumers purchase) • EXAMPLE: MacBookAir (Apple laptop) • MacBook Air (Apple laptop) sells for $1,300 • Best Buy will usually sell one MacBookAir a day • Best Buy offers the product for 15% off, reducing the price to $1,105. Best Buy sells three MacBooks before lunch the first day of the sale. 4

  5. Inelastic Demand (NOT elastic) • Inelastic Demand (NOT elastic): a change in price causes LITTLE or NO CHANGE in the quantity demanded • EXAMPLE: Gas Prices • Regular gas is $3.96 per gallon • Prices jump the following week to $4.15 agallon, an increase of 5% • Sales of gasoline at Sunoco remain constant from week 1 to week 2, despite the increase in price. 5

  6. General Market versus Specific Market 6

  7. Determining Demand Elasticity Determinants of Demand • Can the purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income?

  8. Is your demand Elastic or Inelastic?

  9. Total Receipts or Total Revenue: Price x Quantity Sold Would this business owner make more money by raising t-shirt prices? Is consumer demand Elastic or Inelastic? 9

  10. Total Receipts or Total Revenue: Price x Quantity Sold Would this business owner make more money by raising prices of bags? Is consumer demand Elastic or Inelastic?

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