1. Pick up a Warm Up

2. Elasticity of Demand

3. Elasticity
Elasticity= the degree to which consumers respond to price changes.

4. Elasticity
Elastic Demand= describes demand that is very sensitive to a change in price
Inelastic Demand= describes demand that is not very sensitive to a change in price

5. Calculating Elasticity
Elasticity of Demand = ____% Δ in QD
% Δ in P
Percentage Change = Original Number – New Number Original Number
Take out your CALCULATORS right NOW!!!!!

6. I’ve done the math BUT What do these numbers mean?
Elastic VS Inelastic
Elastic Demand
Elasticity of demand is greater than 1
Inelastic Demand
Elasticity of demand is less than 1
Unit-Elastic Demand
Elasticity of demand equals 1
I’ve done the math BUT What do these numbers mean?

7. Calculating Elasticity
Deluxe Car Wash
Original Price $10.00
Original QD 60
New Price $11.00
New QD 48
ELASTIC

8. Calculating Elasticity
Dentist
Original Price $60.00
Original QD 80
New Price $54.00
New QD 82
INELASTIC

9. What determines Elasticity?
Number of Substitutes
The fewer the substitutes for a good the less responsive buyers are to price increase  Inelastic

10. What determines Elasticity?
Number of Substitutes
The more substitutes there are for a good, the more responsive buyers are to price increases  Elastic

11. What determines Elasticity?
Luxuries VS Necessities
If the P of a necessity increases, people cannot cut back on the good  Inelastic

12. What determines Elasticity?
Luxuries VS Necessities
If the P of a luxury good increases, people are more able to cut back on the good  Elastic

13. What determines Elasticity?
Percentage of Income Spent on the Good
Buyers are less responsive to P changes for goods on which they spend a smaller % of their income  Inelastic

14. What determines Elasticity?
Percentage of Income Spent on the Good
Buyers are more responsive to P changes for goods on which they spend a larger % of their income  Elastic

15. What determines Elasticity?
Time
The less time you have to respond to a price change, your demand for that good doesn’t change  Inelastic

16. What determines Elasticity?
Time
With more time you can change your consumption by finding substitutes and changing your lifestyle  Elastic

17. What do you notice about the formulas?
Elasticity of Supply
A measure of the way suppliers react to a change in price
Elasticity of Supply = % ∆ in QS
% ∆ in P
 Percentage Change = Original Number – New Number
Original Number
What do you notice about the formulas?

18. Elastic vs Inelastic Elastic Supply Results are greater than 1
Supply will change greatly with small changes in prices
EX: If the price of a gallon of milk goes up milk suppliers work to produce vastly more than before.
Inelastic Supply
Results are less than 1
Supply changes only slightly with changes in price.
Ex. As the price of a gallon of gas goes up, people tend to consume the same amount because it is required for them to commute to work.
Unit-Elastic Supply
Results equals 1

19. What determines Elasticity?
Time- plays a key role in the elasticity of goods
In the short run, a firm cannot easily change its output level  inelastic supply
In the long run, firms are more flexible  elastic supply
Which supply is elastic? Why?
Tree farmers cannot change their crops annually to match prices since they have invested both time and labor into creating their produce.