Elasticity- Week Four

Objectives

Explore examples of elastic/ inelastic situations

Determine how consumers respond to price changes

Examine the current economy and determine how consumer react to price changes

Discuss how factors (income, tastes, preferences, branded goods) affect elasticities

Elasticities of Demand

Perfect Elastic

Perfect Inelastic

Relative Elastic

Relative Inelastic

Unitary Elastic

How do YOU respond to Price Change?

Perfect inelastic? – No change in demand (ie/ prescription drugs, etc.)

Relative inelastic? –Change in demand is less than the change in price (ie/ branded goods, Rolex)

Perfect elastic? – 100% demand change (ie/ gasoline, generic water bottle, etc.)

Relative elastic? – Change in demand is greater than the change in price (ie/ food items, clothing, etc.)

Unitary elastic? - % Change in price= same % change in demand

Examples...

One of a kind Porshe

McDonalds food

Generic grapes

Apple computer

Generic can foods

Starbucks coffee

Cigarettes

Today’s EconomyToday’s economy= unemployment, higher prices, sales, etc. …will consumers change their demand when prices change? Why?

Some consumers are more cautious with their spending

Depends on the goods or services

Income- Factor

More money, more demand for certain items (possibly move from elastic to inelastic)

Or…the opposite….

More money, less demand for certain items (inferior goods)

Tastes and Preferences- FactorTastes and preferences can be a factor elasticity of demand

Certain goods and services can transition from inelastic to elastic of demand depending on the good or service (generic vs. branded names)

Addition to a good? – Perfectly inelastic

Familiar to a good (inelastic) vs new good (elastic)

Branded Goods- FactorInelastic demand

Price Changes? Still demand it?

Factors that can affect elasticities of branded goods:

% price change

Unemployment

Life Changes

Tastes & Preferences

Marketing

Others....

Think of examples in which you have a relative elastic demand, relative inelastic demand, perfect elasticity of demand, perfect inelasticity of demand.

Why?

What factors will cause them to change?

Conclusion

There are many cases of elastic/ inelastic situations

Consumers respond to price changes in different ways

The current economy is a determinant to how consumer react to price changes

Factors (income, tastes, preferences, branded goods) affect elasticities

The End