Elasticity

Elastic Demand Price Elasticity of Demand Explains how the demand for a good will change with a change in price. What determines how elastic demand for a good will be? Availability of substitutes Importance of the product in a consumer’s budget Time period allowed for adjustment

Perfectly Elastic Demand What good would fit into this category? Infinite substitutes No difference between products Farmer John’s wheat harvest Very Rare

Perfectly Inelastic Demand What good would fit into this category? No substitutes Poncho’s at a rainy football game Sweatshirts at a suddenly cold baseball game. Very rare

Elastic Demand This is what you usually get Almost always a substitute People adjust in time

Elastic Supply Price Elasticity of Supply Explains how the supply will change with a change in price. What determines how elastic supply will be? Time Market-run (Time period so short that supply is fixed) Short-run (Plant capacity is fixed. Supply can vary from zero, to full capacity) Long-run (Additions to capacity possible. Nothing is fixed)

Calculating Elasticity of Demand If the absolute value is: Greater than 1 – Elastic Less than 1 – Inelastic Equal to 1 – Unit Elastic

Calculating Elasticity of Supply If the value is: Greater than 1 – Elastic Less than 1 – Inelastic Equal to 1 – Unit Elastic