Elasticity of Demand

What is the difference between these two demand curves Inelastic Elastic

Demand Elasticity Demand Elasticity - the degree to which changes in price effect changes in quantity demanded. Demand is elastic when a small change in price effects a large change in quantity demanded.

The flatter the demand curve, the more elastic is the demand. inelastic P Qd P Qd steeper flatter The flatter the demand curve, the larger the change in quantity when price is raised or lowered. The steeper the curve, the smaller the change in quantity when price is raised or lowered.

Do Now Imagine you are somebody who may want to buy the following two items. Now imagine that the price of both of these items DOUBLES. Which would you be more likely to still purchase? Why? Which one would you not purchase? Why?

Determinants of Elasticity 1. Can the purchase be delayed? Do you have to own this product right now in order to be able to survive or function? If the purchase can be delayed, the demand for the product tends to be elastic. If it cannot be delayed it tends to be inelastic.

2. Are adequate substitutes available? If a product has many substitutes, the demand for it tends to be elastic. If the product has fewer substitutes available for a product, the more inelastic the demand. Note: we are talking about product not brand! For example, we are talking about coffee, not Starbucks coffee

3. Does the purchase use a large portion of income? If a product is expensive, then the product tends to be more elastic. If a product is inexpensive, the product tends to be more inelastic. Note: We are not talking about expensive relative to other products. Not an In-n-Out Burger is expensive relative to a McDonald’s hamburger. (A hamburger is generally an inexpensive thing.)

Product: Bentley Yes No Determinant of Elasticity Can the Purchase be Delayed? Yes No Are there substitutes for the product? Does it use a large portion of your income? Is it Elastic or Inelastic? Elastic Inelastic

Product: T-Bone Steak Yes No Determinant of Elasticity Can the Purchase be Delayed? Yes No Are there substitutes for the product? Does it use a large portion of your income? Is it Elastic or Inelastic? Elastic Inelastic

Product: Asthma Inhaler Determinant of Elasticity Can the Purchase be Delayed? Yes No Are there substitutes for the product? Does it use a large portion of your income? Is it Elastic or Inelastic? Elastic Inelastic

Product: Gasoline Yes No Determinant of Elasticity Can the Purchase be Delayed? Yes No Are there substitutes for the produce? Does it use a large portion of your income? Is it Elastic or Inelastic? Elastic Inelastic