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Elasticity of Demand
• Remember the law of demand says that if a price of a product goes up then the quantity demanded will go _________
• And vice versa• Sometimes price changes will really change
demand and other times price changes don’t affect demand as much
• A buyer’s responsiveness to a price change (whether demand really changes or doesn’t change very much) is called ____________________________
down
Elasticity of Demand
3 Factors That Determine A Product’s Elasticity
1. Degree of need (want or luxury item)2. Availability of substitutes3. Expense (does it take a large portion of your
income or a small one)Products can have either elastic or inelastic
demandI. When a price change causes a big change
in the quantity demanded, then that product has _________ ________.
Elastic Demand
Reasons why products have elastic demand (a,b,c on your outline)
a. It’s a luxury itemb. The product has many substitutesc. The product tends to be expensiveExamples---• Name brand clothing• Luxury sports car• i-phone
• The demand curve for an elastic product tends to be flat.
$
Q
D
10
2
4
2
Inelastic curve
P1
P2
D
Reasons why products have inelastic demand
• Tends to be a need
• Few or no substitutes
• Inexpensive/cheap
The demand curve for an elastic demand product tends to be ____________________
Examples: Gasoline, electricity, salt
Price
Quantity
2
4
Q2 Q1
Steep
II. When price change causes very little change in the quantity demanded, then that product has _______ __________a. Need it!b. The product has few, if any, substitutesc. It is cheap
Examples?• Gasoline • Electricity • Salt
The demand curve for an elastic demand product tends to be ____________________
Inelastic Demand
steep
ELASTIC OR INELASTIC?
• Inelastic• Elastic• Elastic• Inelastic• Inelastic• Inelastic • ?• Inelastic• Elastic
• ?• elastic
• Milk• MP3 players• Plastic surgery• Electricity • Cocaine• Coffee • College education• Gasoline• Gas at your favorite
station• Cigarettes • High speed internet
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