Download Elasticity Demand

Add this to your notes or homework
for Demand Ch 3.1/3.2
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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:
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Number of Substitutes
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Luxuries v. Necessities
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% of Income Spent On the Good
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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
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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?
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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?
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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
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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:
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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?