1. Elasticity of Demand
Chapter 4 Section 3

2. Demand Elasticity
Demand Elasticity: the extent to which a change in P causes a change in the Q demanded
3 types
1. Elastic = small change in P causes a large change in Q demanded
example = fresh fruit

3. 3. Unit = % change in P = % change in Q demanded
2. Inelastic = a change in P causes a smaller change or no change in Q demanded
Example: table salt or gasoline
3. Unit = % change in P = % change in Q demanded

4. Total Expenditures Test
Multiply the price by the quantity
Change in
Price
Expenditure
Elastic  
Unit
No change
Inelastic

5. Specific vs. General Market
Examples:
Specific: Exxon Gas Station
If P increases, people would go somewhere else, therefore it is elastic (flexible)
General: All Gas Stations
If P increases, people will have to pay the increase, therefore it is inelastic (nonflexible)

6. Determinants of Demand Elasticity
If 2 or more NO = usually inelastic
If 2 or more YES = usually elastic

7. Determinants of Elasticity
Gas from
Exxon
Gas in
general
Needed
Medicine
Fresh
Oranges
New shoes
Utility service
Rent or Mortgage
Can the
Purchase be
Delayed?
yes
Are adeq. Substitutes available? no
Does the purchase use a large part of income?
Type of
elasticity
Elastic