Presentation on theme: "S&D #5 Demand Elasticity *Quiz on Thursday* 1.If the price of shoes goes up, demand for shoes will go up. 2. You will begin to experience diminishing marginal."— Presentation transcript:
S&D #5 Demand Elasticity *Quiz on Thursday* 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 complimentary goods.
Elastic 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.
Determining Elasticity: % change in quantity % change in price If 1.0 = elastic If 1.0 = IN elastic
What makes something elastic? 1.Substitutes : 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. Share 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 Given time, new sub’s will be created –Oil prices rise, w/time new technology will sub for gas EX hybrids, electrics, etc. In short run – gas is inelastic & in long run more elastic w/ more subs
Are tires elastic OR inelastic? Why?
S&D #7: Gas v. Restaurants Answer questions on front using info on back. PLUS, answer the following: –List 2 items that are the most elastic. Why might those items be so elastic? –List 2 items that are the least elastic. Why might those items be so INelastic?