Presentation on theme: "Supply & Demand #4 Determinants of Elasticity *Quiz on Thursday 3/20/2014* Write the sentences correctly changing the underline word if necessary. 1.If."— Presentation transcript:
Supply & Demand #4 Determinants of Elasticity *Quiz on Thursday 3/20/2014* Write the sentences correctly changing the underline word if necessary. 1.If the price of shoes goes up, demand for shoes will go up. 2. You will begin to experience diminishing marginal utility on your 3 rd scoop of ice cream. 3.Pepsi & Coke are complementary goods.
Elasticity Price of product is elastic if there are dramatic changes in demand w/different prices –Name a product that you’d STOP buying if the price doubled. In elastic: not dramatic changes w/ different prices –Name a product that you’d STILL buy if the price doubled.
What makes something elastic? 1.Are adequate Substitutes available? : more substitutes, more elastic in price If Tylenol doubles in price, what will consumers do? If gas doubles in price, what will consumers do?
2. Does purchase use a large portion of consumer’s budget? If toilet paper doubles in price, what will most consumers do? –TP is a relatively small portion of income (also, no substitutes) If cigarettes double in price, what will most smokers do? –Those addicted, will continue BUT new smokers (teens) may never start b/c it’s a large chunk of their income
3. Time – Can purchase be delayed? Given time, new substitutes will be created –Oil prices rise, w/time new technology will substitute for gas EX: hybrids, electric cars, etc. In short run – gas is inelastic In long run – more elastic w/ more substitutes
ESSENTIAL QUESTION Why are airlines reluctant to offer reduced round-trip airfares during holidays such as Christmas, Easter, and Thanksgiving? Refer to at least 2 of the 3 determinants in your answer.