1. Elasticity Make a list of 5 items you purchase each month. Make a list of 5 items you purchase each month. Next to each item, put its price and the quantity you purchase.Next to each item, put its price and the quantity you purchase. Which items would you buy more of if the prices were lower?Which items would you buy more of if the prices were lower? Which items would you buy less of if the prices were higher?Which items would you buy less of if the prices were higher? For which items are there substitutes?For which items are there substitutes? Do any of your purchases have a complement?Do any of your purchases have a complement?

2. Of Demand

3. Elasticity of Demand The relationship between the percentage change in quantity demanded and the percentage change in price. The relationship between the percentage change in quantity demanded and the percentage change in price. Elasticity = “Responsiveness” Elasticity = “Responsiveness” How responsive is consumer demand to changes in price?How responsive is consumer demand to changes in price?

4. 3 Types : Response to change in demand is greater than the change in price Elastic Demand: Response to change in demand is greater than the change in price : Response to change in demand is less than the change in price Inelastic Demand: Response to change in demand is less than the change in price Unit Elastic Demand: Response to change in demand is equal to change in price. Unit Elastic Demand: Response to change in demand is equal to change in price. (expressed in percentages)

5. Elastic Demand % change in Q d > % change in P % change in Q d > % change in P Example:Price goes up 10% Quantity Demanded goes down 20% % Δ Q d > % Δ P

6. Inelastic Demand % change in Qd < % change in price % change in Qd < % change in price Example: Prices goes up 10% Quantity demanded goes down 5% % Δ Qd < % Δ P

7. Unit Elastic Demand % change in Qd = % change in P % change in Qd = % change in P Example: Price goes up 10% Demand goes down 10% % Δ Qd = % Δ P

8. Factors that Determine Elasticity Goods May Be More Elastic When: Number of Substitutes Number of Substitutes If there are many substitutes, demand may be more elasticIf there are many substitutes, demand may be more elastic Luxuries v. Necessities Luxuries v. Necessities Demand for luxuries is more elastic than demand for necessitiesDemand for luxuries is more elastic than demand for necessities % of Income Spent On the Good % of Income Spent On the Good Demand is more elastic for goods that cost a larger percentage of incomeDemand is more elastic for goods that cost a larger percentage of income Time Time Demand is more elastic as time passesDemand is more elastic as time passes

9. So what? Elasticity of Demand Affects Elasticity of Demand Affects TOTAL REVENUE TOTAL REVENUE ( SOMETHING BUSINESSES CARE VERY MUCH ABOUT )

10. Read p. 80-84. Read p. 80-84. Copy the chart from page 84. Copy the chart from page 84. “Relationship of Elasticity of Demand to Total Revenue” Complete Ch3 Demand H/O Complete Ch3 Demand H/O

11. In your groups discuss the following and prepare to report the group consensus: Our national government has decided to commit to a campaign to reduce smoking. To achieve this goal, a proposed tax of $3.00 will be added to each pack of cigarettes. Our national government has decided to commit to a campaign to reduce smoking. To achieve this goal, a proposed tax of $3.00 will be added to each pack of cigarettes. Do you think cigarettes are elastic, inelastic or unit elastic?Do you think cigarettes are elastic, inelastic or unit elastic? Based on your decision in #1, will a $3.00 tax reduce the number of smokers in our society by more than the price increase?Based on your decision in #1, will a $3.00 tax reduce the number of smokers in our society by more than the price increase? Would you support or oppose this proposal? Do you have other alternatives?Would you support or oppose this proposal? Do you have other alternatives?

12. In the first week, Jane sold 100 bracelets for $2.00 each. What was her total revenue? The second week, she raised the price of bracelets to $2.20 She then sold 75. She then sold 75. To determine elasticity: What is the difference in price between week 1 and week 2? What is the difference in price between week 1 and week 2? What is the percentage change? (Difference ÷ Original) What is the percentage change? (Difference ÷ Original) What is the difference in quantity demanded (sold) between wk 1 and wk 2? What is the difference in quantity demanded (sold) between wk 1 and wk 2? What is the percentage change? (Difference ÷ Original) What is the percentage change? (Difference ÷ Original) % change quantity demanded (bracelets sold) ÷ % % change quantity demanded (bracelets sold) ÷ % change price change price Is the answer greater than 1, less than 1, or equal to 1?Is the answer greater than 1, less than 1, or equal to 1? Is demand elastic inelastic unit-elastic ? Is demand elastic inelastic unit-elastic ? What was her total revenue in the second week? What was her total revenue in the second week? Did her revenue increase or decrease in week 2 ? Did her revenue increase or decrease in week 2 ? If demand is ________, when price increases, revenue _____ $200.00 elastic decreases

13. For your scenario, determine if demand is elastic, inelastic or unit-elastic. Also determine change in revenue. In the first week, Javier sold 100 basketballs for $20.00 each. What was his total revenue? #1 The second week, he raised the price of basketballs to $22.00. What was % change? He then sold 75 bbls? % change? Elasticity? Elasticity? Total Revenue, week 2? Change in revenue? #2 The second week, he lowers price to $18.00. He then sold 150. Elasticity? Elasticity? Total Revenue, week 2? Change in revenue? #3 The second week, he raises price to #22.00. He then sold 95. Elasticity? Total revenue, week 2? Change in revenue? #4 The second week, he lowers price to $18.00. He then sells 105. Elasticity? Total revenue, week 2? Change in revenue?

14. Return to Home Groups In your spiral, create a chart that illustrates: In your spiral, create a chart that illustrates: With elastic demand, price increases cause revenue to __________.With elastic demand, price increases cause revenue to __________. With elastic demand, price decreases cause revenue to _________.With elastic demand, price decreases cause revenue to _________. With inelastic demand, price increases cause revenue to _____________.With inelastic demand, price increases cause revenue to _____________. With inelastic demand, price decreases cause revenue to ________________.With inelastic demand, price decreases cause revenue to ________________.

15. Homework Read p.80-84 Read p.80-84 Section Review p. 84 # 2-5 Section Review p. 84 # 2-5 Read p. 85-Developing Economic Skills: Read p. 85-Developing Economic Skills: “Thinking the Ceteris Paribus Way; or, It’s Never Too Late To Learn Some Latin” “Thinking the Ceteris Paribus Way; or, It’s Never Too Late To Learn Some Latin” Write a short answer to the Question to Answer