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Elasticity
1. Bellringer
Elasticity
How responsive to price changes are you?
1. Which goods would you still buy if they quadrupled
in price AND WHY?
Toothpaste ($2)
New XBOX & PS3 Video Games ($49)
Notebook paper ($0.10)
Burger King Whoppers ($1.99)
Art Supplies ($8)
New Washing Machine ($400)
2. Review: Law of Demand
๏ฎ Netflix example
๏ฎ http://news.yahoo.com/behind-increase-why-
netflix-raising-prices-094058403.html
3.
4.
5.
6. Read hand out
๏ฎ Elastic Demand
๏ฎ Very responsive to
price change
๏ฎ Most normal goods
๏ฎ Many substitutes
๏ฎ Why important to
think about as a
firm?
Price/month
Quantity
D-nice apartments
1000
500
100
1000 5000 10,000
7. Read hand out
๏ฎ Inelastic Demand
๏ฎ Not responsive to price
change
๏ฎ Few substitutes
๏ฎ Necessities
๏ฎ Ex: lifesavers
๏ฎ Why does government
often control prices of
inelastic goods?
๏ฎ Illegal drugs?
Price/dose
Quantity
D-dialysis100
1 2 3
200
300
400
500
600
700