elasticity 2014
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Elasticity refers to how responsive consumer demand is to changes in price. Demand is more elastic when consumers have good substitutes and the good is a small part of their budget, meaning they will buy less if prices increase. Demand is more inelastic when there are few substitutes and it is a necessity, so consumers will continue to buy it even if prices rise. Examples of elastic goods include bicycles and vacations, while inelastic goods include insulin, baby formula, and gasoline. Firms must understand elasticity to determine how price changes will impact revenue and profits.
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elasticity 2014
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- 4. Full page Bellringer 1. Would you buy each of these goods if the price quadrupled AND WHY? Toothpaste ($2) New XBOX & PS3 Video Games ($49) Notebook paper ($0.10) Sonoran Hot dog ($2.50) Art Supplies ($8) New Washing Machine ($400) 2. Get out your notes
- 5. Today’s topic: Elasticity Responsive to price changes
- 9. Graph this demand curve in your notes Price Quantity Demanded $1.25 1 $1.00 3 $0.75 9 At your tables: What do you notice about this demand? Do these consumers care about price? What product might fit this demand?
- 10. If I really care about price…. • Elastic Demand – Very responsive to price change – Many substitutes – Big part of budget – Don’t buy very often – Why important to think about as a firm? Price/month Quantity D-nice apartments 1000 500 100 1000 5000 10,000
- 11. Graph this demand curve in your notes Price Quantity Demanded $1.50 3 $1.00 4 $0.50 5 At your tables: What do you notice about this demand? Do these consumers care about price? What product might fit this demand?
- 12. If I will still buy it • Inelastic Demand – Not responsive to price change – Few substitutes – Small part of budget – Why does government often control prices of inelastic goods? – Illegal drugs? Price/dose Quantity D-dialysis100 1 2 3 200 300 400 500 600 700
- 13. In Reality
- 14. Are the following goods more elastic or inelastic, short explanation for each • new cars • ground beef • insulin for diabetics • Notebook paper • Gasoline • bicycles • Trip to Costa Rica • Prom tickets • XboxOne • tattoos • deodorant • Designer Clothing • Baby formula • MP3 Music Downloads • Cell phone for 8th grader • Cell phone for salesperson • college textbooks
- 15. Summary