1. Elasticity

2. Elasticity
The degree in which a demand or supply curve react to a change in price
Varies as the importance of a product changes for the consumer
Products that are necessary react less: inelastic
Unnecessary or luxury goods react more
People will weigh the opportunity cost more based on product price

3. Elasticity Equation The way to calculate the elasticity of a product
% change in quantity
% change in price
If elasticity is greater than or equal to one: considered elastic
If elasticity is less than one: considered inelastic

4. Elasticity in Demand

5. Elastic products
The flatter the demand curve: the good or service is elastic
Steeper change in demand based on a price change

6. Inelastic Products
Highly sloped demand curve: the good or service in more inelastic
Less significant of a change in demand based on a price change

7. Factors of Demand Elasticity
1) Availability of substitutes
The more substitute goods, the more elastic demand will be
Ex: coffee prices went up by $2. Will replace coffee with other drinks, causing a large decrease in demand
Graph this scenario
Is the caffeine industry elastic or inelastic?

8. Factors of Demand Elasticity
2) Income
The total amount a person can spend on a good or service
If price increases while income stays the same, demand will decrease
Ex: a pack of gum used to cost $.50, but now cost $1. You no longer can buy as much gum with the $2 you have – you’re forced to reduce your demand
A change in price and no change in income, the demand is more elastic
Sensitive to the change in price dependent on income

9. Factors in Demand Elasticity
Time
Non-durable goods tend to be more elastic over the long-run than the short-run
Short-term: its difficult to find a substitute
Long-run: people can change their behavior
Ex: Gasoline, Cigarettes
Durable goods tend to be less elastic
Necessity to replace those goods with time
Ex: Cars, Kitchen appliances

10. Factors of Demand Elasticity
Brand loyalty
Attachment to a brand can override sensitivity to price changes
Insensitivity results in more inelastic demand
Apple
Hyundai
Ford
Domino’s
Google

11. Elasticity in Supply

12. Elastic Products
Price changes that result in a large change in the amount supplied of a good is elastic

13. Inelastic Products
Goods that are less sensitive to price changes are considered inelastic

14. Factors in Supply Elasticity
Availability of raw materials
Resources availability are not effected by changes in price
Rare goods are considered inelastic, as they are rare no matter the price
EX: rare earth metals are hard to extract. Even if price for them went up on the market, the supply would not drastically increase

15. Factors of Supply Elasticity
Production
If production is simple, the good tends to be elastic
Productions that are multi-stepped, need skilled labor, or specialized equipment are usually inelastic
EX: Bugatti Veyron
Mobility of production
If a producer can quickly change their production to a new good that is more in demand, the supply is more elastic

16. Factors of Supply Elasticity
Time
The more time a producers has to respond to a change in price, the more elastic the supply
Short-run: supply of goods are more inelastic
Long-run: supply of goods are more elastic
Production can change to meet the demand and market price
EX: cotton