1. Ch. 3—Elasticities

2. Elasticity How much does quantity demanded change when price changes?
Synonyms: Responsiveness, Sensitivity

3. Examples of Elasticity Numbers
Salt = 0.1
Coffee = 0.25
Cigarettes = 0.45
Restaurant meals = 2.3
Chevys = 4.0
Fresh tomatoes = 4.6

4. So what do these numbers mean?

5. Range of values for elasticity
When between 0 and 1 = inelastic
If you change the price, the quantity demanded does not change a lot

6. Range of values for elasticity
When greater than 1 = elastic
If you change the price, quantity demanded changes a lot

7. Range of values for elasticity
When equal to 1, there is unit elastic demand

8. Range of values for elasticity
When equal to 0 = perfectly inelastic
Price changes do not affect quantity demanded

9. Range of values for elasticity
When equal to infinity = perfectly elastic

10. What affects elasticity?
Number and closeness of competing goods
The easier it is to find a substitute for something, the more elastic

11. What affects elasticity?
Definition of good
Narrowly defined goods are more elastic

12. What affects elasticity?
Necessities v. Luxuries
Things that are not necessary (luxuries) are more elastic because you can live without them if price goes up
Necessities are necessary, so you’ll still want them if price goes up

13. What affects elasticity?
Length of Time
Everything is more elastic over time, because people can change behavior over time

14. Practice Makes Perfect!