Elasticity of Demand Economics. What Does it Mean? Economists: How consumers respond to price...
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Transcript of Elasticity of Demand Economics. What Does it Mean? Economists: How consumers respond to price...
Elasticity of Elasticity of DemandDemand
EconomicsEconomics
What Does it Mean?What Does it Mean?
Economists: How consumers respond to Economists: How consumers respond to price changes.price changes.
In other words:In other words: Elasticity of demand is how much buyers will Elasticity of demand is how much buyers will
increase or decrease their demand for a good increase or decrease their demand for a good when the price rises or fallswhen the price rises or falls
Inelastic vs. ElasticInelastic vs. Elastic
Inelastic – Inelastic –
unresponsive change in demand when price changes
Elastic – Elastic –
responsive change in demand when price changes
Examples: Examples: clothing, food
Price RangePrice Range Elasticity of demand can vary greatly at different
price ranges
Examples:Examples:
Inelastic Magazine rises 50% : $ .20 to $ .30 Demand shouldn’t change much
Elastic Magazine rise 50%: $4.00 to $6.00 Some people may refuse to pay the $2.00 increase
Factors Affecting ElasticityFactors Affecting Elasticity
1.1. Availability of SubstitutesAvailability of Substitutes
Few substitutes – Demand still goes up with price increases
Example:Example:Tickets to concerts, sporting events
FactorsFactors
2.2. Relative ImportanceRelative ImportanceHow much can you afford to spend on a product?
3.3. Necessities vs. luxuriesNecessities vs. luxuriesNeeds vs. wants
FactorsFactors
4.4. Change over timeChange over time Can’t find substitutes in short term In long term demand becomes elastic
Examples:Examples:Gasoline, ice