Chapter 3

Elasticity of Demand

Elasticity – the degree to which changes in price affect the quantity demanded by consumers

Elastic Goods - Small change in price causes a major, opposite change in demand.

Inelastic Goods - Change in price causes little impact in the quantity demanded.

Elastic Goods

Goods tend to be elastic if:

- There are available substitutes.

Ex. pan dulce

-Product is a large portion of consumer’s income – houses or cars (think SUVs)

-Item is a luxury good

*Elastic goods tend to have a flat or almost horizontal demand curves

Goods or services tend to be inelastic if:- The product is a necessity – insulin- There are few or no readily available substitutes - gasoline- Product’s cost represents a small proportion of consumer’s income -

salt

*Inelastic goods tend to have steep or almost vertical demand curves

Inelastic Demand