Elasticity. What is elasticity ? We will discuss Elasticity for both demand and supply Elasticity of Demand – how drastically buyers will decrease or.

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Elasticity

What is elasticity ? We will discuss Elasticity for both demand and supply Elasticity of Demand – how drastically buyers will decrease or increase buying of a good when the price rises or falls. Different types of elasticity: (are you flexible on purchases or not?) Elastic Demand = demand is very SENSITIVE to price change – meaning consumers will drastically change demand if price rises or falls – You are flexible when it comes to buying – price place a big role in choices – There is a formula for calculating elasticity, which we will cover in a few slides (% change greater than 1) Ex: If the price of 20oz Cokes increases 10%, you are no longer willing to buy it – you are elastic (flexible) when it comes to buying Coke, and will buy Big K instead

What is Elasticity? Inelastic Demand= Demand typically will NOT change drastically or you are unresponsive to a price change – You are NOT flexible when it comes to that product - meaning you’re still likely to buy at any price – We will learn how to calculate ( % change less than 1). Ex: You are VERY loyal to AVON makeup, and will only buy that brand, even if the prices keep increasing

How do you calculate elasticity To get the elasticity, you must first determine your % change in quantity demanded and percent change in price, then use those numbers to calculate elasticity Formulas Step 1 – calculate the change of your quantity and the change of price – You must do this TWICE Percent Change = Original (old) # - New # x 100 Original (old) # Step 2 – take the two calculations (one for QD and one for price) and plug it into this formula. Elasticity = % change in quantity demanded % change in price

What does the % of elasticity tell us If the elasticity is EQUAL to 1, then the elasticity is UNITARY – meaning there was NO CHANGE. If the elasticity is > (less) than 1, then the elasticity is INELASTIC – meaning you did not budge much – you still bought it If the elasticity is < (greater) than 1, then the elasticity is ELASTIC – meaning you really changed your demand on that good

Necessities v. Luxuries Necessities tend to be INELASTIC – b/c you will always demand them at any given price Ex: Gas, Milk, bread, formula, heating/air, Luxuries tend to be ELASTIC – b/c you can live without them Ex: Cars, name brands (sometimes, if you aren’t loyal), Perfumes, Outings (restaurant, bowling, etc) Habits/Addictions also tend to be INELASTIC Ex: Cigarettes, gambling,

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