1. 1 Essential Question: Explain the term “Elasticity of Demand, select two different products (one with elastic demand and one with inelastic demand) and justify (using evidence from these notes) why each product has the type of demand that it does; explain what information the total revenue test provides. Elasticity of Demand SECTION 3

2. What is elasticity of demand? This is the measure of how much Demand changes (increase/decrease) whenever price is increased or decreased. Elasticity of Demand SECTION 3

3. 3 Difference between elastic and inelastic demand: elastic demand—when a small change in a product’s price results in a significant change in the quantity demanded inelastic demand—when a change in a product’s price has only a slight effect on the quantity demanded Elasticity of Demand SECTION 3

4. 4 Elastic Demand (three conditions): Elastic demand—tends to occur when The product is not a necessity There are readily available substitutes The product’s cost represents a large overall portion of a consumers income. When looking at a demand curve, Elastic demand shows a steep change as the curve moves from left to right. Copy graph 1 in your notes!!! Elasticity of Demand SECTION 3

5. 5 Inelastic Demand (three conditions) Inelastic demand—tends to occur when The Product is a necessity Few to no available substitutes The products purchase price represents a small portion of a consumers income. When looking at a demand curve, Inelastic demand shows a gradual change as the curve moves from left to right. Copy graph 2 in your notes!! Elasticity of Demand SECTION 3

6. Total Revenue Test. Revenue is determined by multiplying the price of an item by the Q.D. for that price (Using a demand schedule) Revenue is measured as a dollar figure A Total Revenue test tells you: The price that makes you the most money The degree of change in revenue between two prices Elasticity of Demand SECTION 3

7. GO BACK TO CN 3.1. do now! Find the demand schedule that we wrote into our notes in Chapter 3, Section 1 For each price, multiply the price by the quantity demanded and write this number in the space I asked you to leave underneath. Determine, at which price I should have sold the water at (which price I make the most REVENUE) Elasticity of Demand SECTION 3