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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.

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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:

1 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.

2 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.

3 Determining Elasticity: % change in quantity % change in price If 1.0 = elastic If 1.0 = IN elastic

4 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?

5 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

6 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

7 Are tires elastic OR inelastic? Why?

8 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?


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