Add this to your notes or homework for Demand Ch 3.1/3.2 Make a list of 5 items you purchase each month. • 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 less of if the prices were higher? • For which items are there substitutes? • Do any of your purchases have a complement? Of Demand Elasticity of Demand The relationship between the percentage change in quantity demanded and the percentage change in price. Elastic Demand % change in Qd > % change in P Price goes up 10% Quantity Demanded goes down 20% Inelastic Demand % change in Qd < % change in price Prices goes up 10% Quantity demanded goes down 5% Unit Elastic Demand % change in Qd = % change in P Price goes up 10% Demand goes down 10% Factors that Determine Elasticity Goods May Be More Elastic When: Number of Substitutes Luxuries v. Necessities % of Income Spent On the Good Time Complete Ch3 Demand H/O In the first week, Jane sold 100 bracelets for $2.00 each. What was her total revenue? $200.00 The second week, she raised the price of bracelets to $2.20 To determine elasticity: What is the difference in price between week 1 and week 2? What is the percentage change? (Difference ÷ Original) She then sold 75. What is the difference in quantity demanded (sold) between wk 1 and wk 2? What is the percentage change? (Difference ÷ Original) % change quantity demanded (balls sold) ÷ % change price • Is the answer greater than 1, less than 1, or equal to 1? Is demand elastic inelastic unit-elastic ? What was his total revenue in the second week? Did his revenue increase or decrease in week 2 ? If demand is ________, when price increases, revenue _____ So what? Elasticity of Demand Affects TOTAL REVENUE ( SOMETHING BUSINESSES CARE VERY MUCH ABOUT) 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 #2 #3 #4 The second week, he raised the price of lowers price to $18.00. He basketballs to $22.00. What then sold 150. was % change? He then sold Elasticity? 75 bbls? % change? Total Revenue, week 2? Elasticity? Change in revenue? Total Revenue, week 2? Change in revenue? The second week, he raises price to #22.00. He then sold 95. Elasticity? Total revenue, week 2? Change in revenue? The second week, he lowers price to $18.00. He then sells 105. Elasticity? Total revenue, week 2? Change in revenue? Homework Read p.80-84 Section Review p. 84 # 2-6 Read p. 85-Developing Economic Skills: “Thinking the Ceteris Paribus Way; or, It’s Never Too Late To Learn Some Latin” Write a short answer to the Question to Answer 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. • 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? • Would you support or oppose this proposal? Do you have other alternatives?