1. Elasticity of
Demand

2. When Price , Quantity demanded
But, by how much?
How much does the price have to go up to get a
big or small change in quantity demanded?
The answer is….
IT DEPENDS
It depends on the price elasticity of the product
Elasticity = Measure of sensitivity
The extent to which a change in price causes a change in quantity demanded
Say to the students--
"You might be saying to yourselves, WHAT DO INSULIN AND BICYCLES HAVE IN COMMON"?
PAUSE
"How many of you in here know what insulin is used for"?

3. Insulin and Bicycles I want to talk about two products for the next
ten minutes.
Insulin and
Bicycles
Say to the students--
"You might be saying to yourselves, WHAT DO INSULIN AND BICYCLES HAVE IN COMMON"?
PAUSE
"How many of you in here know what insulin is used for"?

4. Diabetes
Let the students know that you are teaching across the curriculum here. This is the molecule for insulin.
molecules

5. Every morning, millions of diabetics give
themselves a shot of insulin just to stay alive.
Talk to the students about how difficult it must be to be a diabetic.

6. over 10 million diabetics, 110 million worldwide.
In the U.S., there are
over 10 million diabetics,
110 million worldwide.
Information about diabetes.
(2001)

7. Now you say to yourself
again, so what do
insulin and bicycles
have in common?
Diabetics ride bicycles.

8. P P $300 $3 $200 $2 $100 $1 D D 10 m Q 100 200 300 Q Insulin Bicycles
Would diabetics be willing to pay $1 for a bottle of insulin? How many diabetics would be willing to pay $2 a bottle? All of them. How about $3? All of them. The demand curve for insulin between the prices of $3 and 1 cent is perfectly INELASTIC.
For bicycles though, at $300, 100 bicycles would be purchased; at $200, 200 bicycles would be purchased; at $100, 500 bicycles would be purchased. So what happened to DEMAND as the price of bicycles goes down? NOTHING! Something happens to the QUANTITY DEMANDED. The demand curve stays the same. (You are just testing the students’ memory here).
Insulin
Bicycles

9. e P INELASTIC P ELASTIC $300 $3 $200 $2 $100 $1 D D 10 m 100 200 300 Q
To help the students to remember inelastic and elastic, you can tell them for Inelastic, the demand curve looks like an “I,” Insulin, Inexpensive. For Elastic, the demand curve looks sort of like an “E” (okay, sort of), Expensive, and Bicycles has an “e” in it.
Insulin
Bicycles
Four tests for figuring elasticity of demand: 1.
Few substitutes
Many substitutes
One has few substitutes and one has many? 2.
Necessity
Luxury
One is a necessity and the other is a luxury? 3.
Inexpensive
Expensive
One is expensive and the other is inexpensive

10. More time = More elastic
ELEMENT OF TIME
In General, demand is more elastic over longer periods of time. Given enough time, consumers may develop tastes for other products or actively look for & find substitutes which would increase elasticity.
More time = More elastic
Say to the students--
"You might be saying to yourselves, WHAT DO INSULIN AND BICYCLES HAVE IN COMMON"?
PAUSE
"How many of you in here know what insulin is used for"?

11. e P INELASTIC P ELASTIC $300 $3 $200 $2 $100 $1 D D 10 m Q 100 200 300
To help the students to remember inelastic and elastic, you can tell them for Inelastic, the demand curve looks like an “I,” Insulin, Inexpensive. For Elastic, the demand curve looks sort of like an “E” (okay, sort of), Expensive, and Bicycles has an “e” in it.
Insulin
Bicycles
Four tests for figuring elasticity of demand: 4.
Less time
More time

12. Why? Pizza Elastic Many substitutes Food Inelastic Sports Cars Elastic
I am going to name a product and you let me know if the demand for the product is elastic or inelastic:
Elastic or Inelastic?
Why?
Pizza
Elastic
Many substitutes
Food
Inelastic
Few substitutes + Necessity
Sports Cars
Elastic
Expensive/Luxury
Hamburger
Elastic
Many substitutes
Gasoline
Inelastic
Few substitutes
Cigarettes
Inelastic
Necessity (addiction)
Shelter
Inelastic
Few substitutes + necessity
House
Elastic
Many Substitutes + expensive

13. Inelastic Elastic You Won’t change your decision easily
You’ll change your decision relatively easily