HOW FLEXIBLE IS CONSUMER

DEMAND?

ELASTICITY OF DEMANDCh 4, s3 – pages 92-98

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WARM-UP

ON A SCALE OF 1 TO 10, 1 BEING LEAST AND 10 BEING MOST IMPORTANT, HOW IMPORTANT ARE THE FOLLOWING RESOURCES TO YOU AS A CONSUMER? WATER GASOLINE BRUSTERS ICE CREAM TACO BELL YOUR HAIRDRESSER

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Demand Elasticity

Demand Elasticity: a measure of how changes in price causes changes in Quantity Demanded. How will a price change influence a consumer’s decision to buy?

EXAMPLE: Lobster Tails Usually priced at $12 each Price lowered to $9 each How will the price change impact Quantity Demanded? Will people buy the same amount of lobster or more

lobster because of the price change? Demand Elasticity illustrates how price changes

influence consumer behavior!!!

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Elastic Demand

Elastic Demand : a change in price causes a large change in quantity demanded (how much of a good or service consumers purchase)

EXAMPLE: MacBook Air (Apple laptop) MacBook Air (Apple laptop) sells for $1,300 Best Buy will usually sell one MacBook Air a day Best Buy offers the product for 15% off, reducing

the price to $1,105. Best Buy sells three MacBooks before lunch the first day of the sale.

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Inelastic Demand (NOT elastic)

Inelastic Demand (NOT elastic): a change in price causes LITTLE or NO CHANGE in the quantity demanded

EXAMPLE: Gas Prices Regular gas is $3.96 per gallon Prices jump the following week to $4.15a gallon, an increase of 5% Sales of gasoline at Sunoco remain

constant from week 1 to week 2, despite the increase in price.

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General Market versus Specific Market

GENERAL SPECIFIC

Food Red Robin Burger and Fries

Cell Phone I-Phone

College Degree Harvard Diploma

Shoes Nike Air Jordan 2012 Deluxe

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Determining Demand Elasticity

Determinants of Demand1. Can the purchase be delayed? 2. Are adequate substitutes

available? 3. Does the purchase use a large

portion of income?

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Is your demand Elastic or Inelastic?

CAR BMW Ice Cream

CollegeDegree

House / Apt

Can purchase be delayed?

Are substitutes available?

Does the purchase use a lot of income?

Elastic or inelastic

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Total Receipts or Total Revenue: Price x Quantity Sold

Price of T-Shirts

Quantity Sold

Total Receipts

$10 15 $150$15 13 $195$20 11 $220$25 10 $250

Would this business owner make more money by raising t-shirt prices? Is consumer demand Elastic or Inelastic?

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Total Receipts or Total Revenue: Price x Quantity Sold

Price of Bags Quantity Sold Total Receipts

$25 30 $ 750

$35 20 $ 700

$45 16 $ 720

$55 11 $ 605

Would this business owner make more money by raising prices of bags? Is consumer demand Elastic or Inelastic?