Elasticity of Demand Remember the law of demand says that if a price of a product goes up then the quantity demanded will go _________ And vice versa Sometimes price changes will really change demand and other times price changes don’t affect demand as much A buyer’s responsiveness to a price change (whether demand really changes or doesn’t change very much) is called ____________________________ down Elasticity of Demand

3 Factors That Determine A Product’s Elasticity 1. Degree of need (want or luxury item) 2. Availability of substitutes 3.Expense (does it take a large portion of your income or a small one) Products can have either elastic or inelastic demand I.When a price change causes a big change in the quantity demanded, then that product has _________ ________. ElasticDemand

Reasons why products have elastic demand (a,b,c on your outline) a.It’s a luxury item b.The product has many substitutes c.The product tends to be expensive Examples--- Name brand clothing Luxury sports car i-phone The demand curve for an elastic product tends to be flat. $ Q D

Inelastic curve P1 P2 D Reasons why products have inelastic demand Tends to be a need Few or no substitutes Inexpensive/cheap The demand curve for an elastic demand product tends to be ____________________ Examples: Gasoline, electricity, salt Price Quantity 2 4 Q2 Q1 Steep

II.When price change causes very little change in the quantity demanded, then that product has _______ __________ a. Need it! b. The product has few, if any, substitutes c. It is cheap Examples? Gasoline Electricity Salt The demand curve for an elastic demand product tends to be ____________________ InelasticDemand steep

ELASTIC OR INELASTIC? Inelastic Elastic Inelastic ? Elastic ? elastic Milk MP3 players Plastic surgery Electricity Cocaine Coffee College education Gasoline Gas at your favorite station Cigarettes High speed internet