Elasticity of Demand
Warm-up
 Think about the last thing that you bought, would you

still buy it if it were 30 NT more? 300 NT more? 3000
NT ...
Elasticity of Demand
 A measure of how responsive consumers are to price

changes
 The law of demand tells us what will ...
Elastic versus Inelastic
 Demand is Elastic if quantity demanded changes

significantly (a lot) as price changes
 Demand...
Unit Elastic
 Demand is unit elastic when the percentage change in

price and quantity demanded are the same.
 A 10% inc...
Warm-up
 How does an inelastic demand curve look different

from an elastic demand curve?
 Draw the difference!
Factors that determine Elasticity
 Substitute goods or services
 If there is no substitute then it tends to be inelastic...
Factors that affect Elasticity cont.
 Necessities versus Luxuries
 A necessity is something you must have: food, water,
...
Calculating Elasticity of Demand
 ((Original Quantity – New Quantity)/ (Original

Quantity) )x 100 = Percentage change in...
Total Revenue
 Total revenue is a company’s income from selling its

products
 Price X Quantity = Total Revenue
 Total ...
Classwork
 Problems
 Applications
 A p.118 B p.120, C p.121, D p.122
 Graph/Chart Questions
 P. 118,120, 122
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Demand elastic chapter 4 section 3

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Demand elastic chapter 4 section 3

  1. 1. Elasticity of Demand
  2. 2. Warm-up  Think about the last thing that you bought, would you still buy it if it were 30 NT more? 300 NT more? 3000 NT more?  How much would the price have to change for you not to buy it?
  3. 3. Elasticity of Demand  A measure of how responsive consumers are to price changes  The law of demand tells us what will happen; elasticity of demand will tell us by how much!  Tells us how sensitive customers are to price change
  4. 4. Elastic versus Inelastic  Demand is Elastic if quantity demanded changes significantly (a lot) as price changes  Demand is Inelastic if quantity demanded changes little as price changes  The more inelastic a product the steeper the demand curve.  If quantity demanded is a rubber band, then elastic demand will cause it to stretch a lot and inelastic demand hardly at all.
  5. 5. Unit Elastic  Demand is unit elastic when the percentage change in price and quantity demanded are the same.  A 10% increase in price would cause a 10% decrease in quantity demanded  No product is truly unit elastic, but this is the middle point between a product being elastic or inelastic.
  6. 6. Warm-up  How does an inelastic demand curve look different from an elastic demand curve?  Draw the difference!
  7. 7. Factors that determine Elasticity  Substitute goods or services  If there is no substitute then it tends to be inelastic  Proportion of income  The lower the percentage of income it affects, the more likely it will be elastic.  Ex: if you already spend a lot of money on something, it may be harder to spend just a little more on it, thus being inelastic for you. (This changes as income changes)
  8. 8. Factors that affect Elasticity cont.  Necessities versus Luxuries  A necessity is something you must have: food, water, etc…  Even if prices rise, consumers will pay what they can afford  A luxury is something you desire, but is not essential to life: a television, video games, etc…  Demand for necessities tends to be inelastic while demand for luxuries tends to be elastic
  9. 9. Calculating Elasticity of Demand  ((Original Quantity – New Quantity)/ (Original Quantity) )x 100 = Percentage change in quantity demanded  ((Original Price – New Price)/(Original Price)x100 = Percentage change in price  (Percentage change in quantity demanded)/ (Percentage change in price) = Elasticity  If elasticity is less than 1 then demand is inelastic, if it is greater than 1 then demand is elastic.
  10. 10. Total Revenue  Total revenue is a company’s income from selling its products  Price X Quantity = Total Revenue  Total Revenue test is a method of measuring elasticity by comparing total revenues  If total revenue increases after the price decreases, then demand is considered elastic.
  11. 11. Classwork  Problems  Applications  A p.118 B p.120, C p.121, D p.122  Graph/Chart Questions  P. 118,120, 122

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