Monday, April 6 Welcome back! I hope your weekend was great! Bellringer: – What is the difference between a change in demand and a change in quantity demanded?
Demand Today: Review headline activity on p. 58
Elasticity of demand There are some goods we will always find money to buy, even if the price goes up drastically – Examples: Elasticity helps us measure how consumers respond to price changes for different products
Elasticity of demand Elasticity of demand: a measure of how consumers react to a change in price – Elastic: describes demand that is very sensitive to a change in price As prices rise, demand falls, revenues decrease – Inelastic: describes demand that is not very sensitive to a change in price As prices rise, demand ceteris paribus, revenues increase (inelastic)
Calculating elasticity Total revenue: the total amount of money a firm receives by selling goods or services (price X quantity = total revenue)
Total revenue Elasticity of demand determines the effect of a price change on total revenues: Elastic demand Total revenue rises As price is lowered … Total revenue falls As price is raised …
Total revenue Elasticity of demand determines the effect of a price change on total revenues: Inelastic demand Total revenue falls As price is lowered … Total revenue rises As price is raised …
Calculating elasticity Percentage change in quantity demanded Percentage change in price Elasticity = Percentage change = (Original number – New number) Original number X 100
If the result of your elasticity formula is … What if you got a negative number? Don’t worry. Calculating elasticity More than 1.0Less than 1.0 ElasticInelastic
Calculating elasticity Calculate the elasticity of demand in the following examples. Then tell if, in each case, demand is elastic or inelastic.
Calculating elasticity When the price of a deluxe car wash rises from $10 to $11, the number of daily customers falls from 60 to 48. Elasticity = Percentage change in quantity demanded Percentage change in price Percentage change = Original number – New number Original number X 100
Calculating elasticity Calculate the elasticity of demand in the following examples. Then tell if, in each case, demand is elastic or inelastic. – A dentist with 80 patients cuts his fee for a cleaning from $80 to $54 and attracts two new patients.
Factors of elasticity Substitutes – What other things can be used instead? How readily available are those things? How much do they cost? Importance Does the consumer consider the item to be a necessity or a luxury? Time – It takes time for consumers to react to price changes and find substitutes
Chapter 5: Supply Supply: the amount of goods available Law of supply: tendency of suppliers to offer more of a good at a higher price
Supply and the supply curve Supply curve: a graph of the quantity supplied of a good at different prices Market supply curve: a graph of the quantity supplied of a good by all suppliers at different prices
Supply and the supply curve Supply schedule: a chart that lists how much of a good a supplier will offer at different prices Variable: a factor that can change Market supply schedule: a chart that lists how much of a good all suppliers will offer at different prices
Practice Please complete the demand and supply sheets (front and back) for practice.