© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.21 LESSON 4.2 Elasticity of Demand  Compute the elasticity of demand, and explain its relevance.  Discuss.

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© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.21 LESSON 4.2 Elasticity of Demand  Compute the elasticity of demand, and explain its relevance.  Discuss the factors that influence elasticity of demand. Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.22 LESSON 4.2 Elasticity of Demand  elasticity of demand  total revenue Key Terms

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.23 Computing the Elasticity of Demand  Elasticity of demand measures the percentage change in quantity demanded divided by percentage change in price. Elasticity of demand = Percentage change in quantity demanded Percentage change in price

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.24 Computing the Elasticity of Demand  Elasticity values  Elasticity and total revenue

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Millions of pizzas per week $ Price per pizza The Demand for Pizza D

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.26 Determinants of Demand Elasticity  Availability of substitutes  Share of consumer’s budget spent on the good  A matter of time  Some elasticity estimates

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Millions of gallons per day 0 $ Price per gallon D y D m D w Demand Becomes More Elastic Over Time

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 4.28 Selected Elasticities of Demand Product Short Run Long Run Electricity (residential) Air travel Medical care and hospitalization Gasoline Movies Natural gas (residential)1.42.1