Download Elastic Demand Elastic Demand

Elasticity of Demand
Warm Up: Give an example of what
would cause a demand shift.
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What affects Quantity Demanded?
What affects Demand?
If the price of snickers increases what will happen
to the demand for twix? What caused the change
in demand?
You just get a new high paying job, what kind of
goods would be more likely buy now?
More people enter the country what will happen to
demand
Elasticity of Demand
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Elasticity of Demand—is the degree to which
changes in a good’s price affect the quantity
demanded by consumers.
Elastic- Exists when a small change in a goods
price causes a major opposite change in the
quantity demanded. P Q
Inelastic- Exists when a change in a good’s price
has little impact on the quantity demanded. P Q
Elastic Demand
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Elastic Demand— Exists when a small
change in a goods price causes a major
opposite change in the quantity demanded.
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P Q
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Elastic if: 1. Product is not a necessity
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2. There are readily available substitutes
3. Products cost is a large portion of
consumers income
Elastic Demand
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Ex. Pizza:
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1. Not a necessity
2. Available substitutes(sandwiches, tacos)
Student’s income—larger portion
Elastic/Inelastic Demand?
Inelastic Demand
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Inelastic Demand— Exists when a change in a
good’s price has little impact on the quantity
demanded.
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P Q
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Inelastic demand if:
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1. The product is a necessity
2. There are few or no substitutes
3. Products cost is small portion of consumers
income.
Inelastic Demand
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Ex. Salt: Why?
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1. Necessity
2. Has few substitutes
3. Does not represent large portion of income
Elastic/Inelastic? Why?
Elasticity in Markets
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Specific or General Product Market—
Do you look at the overall big picture or
the specific picture? Flour example:
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Overall flour market increases prices—
inelastic because necessity, no subs, not
overly expensive.
Basha’s raises price of flour but others
don’t—Flour at Basha’s is elastic
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Inelastic – Necessities or addictions
Name some products that would be inelastic
 Housing, electricity, bread, telephone service, eggs,
clothing, milk, gasoline, tobacco and alcohol
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Elastic - Luxuries
Name some products that would be elastic
 Restaurant meals, going to the movies, entertainment,
big vacations
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The slope of the demand curve is affected
Steep demand curves are inelastic
 Flat demand curves are elastic
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E = (% change in quantity demanded) / (%
change in price)
E > 1 - elastic 1+
E < 1 - inelastic less than 1
E = 1 - unit elastic
Vertical Demand Curve: is perfectly inelastic
Horizontal Demand Curve: is perfectly elastic
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Little responsiveness to price describes a(n)
________ good.
What is the formula for elasticity of demand?
What makes goods more elastic?
Give three examples of an inelastic good.
Give three examples of an elastic good.
What is the slope of a perfectly elastic good?
Elasticity of a unitary good is ______________.
If a good makes up a small portion of your budget
it is most likely an ___________ good.
Case Study Analysis
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Directions: In this case study, you will be examining the company,
“Not Your Daughter’s Jeans” and one of their leading products,
Tummy Tuck Jeans. After reviewing the case study information below,
watch the Paul Solman news segment and look for the explanations of
the following concepts. Then discuss and answer the questions below.
Case Study Information:
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Company: Not Your Daughter’s Jeans (NYDJ), based in Los Angeles,
California
Featured Product: Tummy Tuck Jeans
Market Coverage: U.S. and North America, Australia, New Zealand,
Germany, France, Scandinavian countries, UK, Ireland
Target market: Women over 40 years-old
Suggested Retail Price: $100
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Important economic concepts involving this product:
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Economic downturn in United States: Over the past year, the U.S. economy
slid into a severe recession. Unemployment is markedly up and stocks and
investments have plummeted. Financial sector has been reeling from bank
closures and major industries like automobiles and related companies have filed
for bankruptcy.
Question: What should be the effect on sales of Tummy Tuck Jeans at
$100/pair in this difficult economic climate?
______________________________________________________________
Question: According to the news segment, what steps would a company like
NYDJ normally take to “cut corners” and survive in this type of economic
climate?
______________________________________________________________
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Weak U.S. dollar: In recent years, the U.S. dollar has become less
valuable than many foreign currencies. In other words, it takes more
U.S. dollars to match the unit of currency (yen, Euro, krona, etc.) in a
foreign country.
Question: How has a weak U.S. dollar affected sales of Tummy Tuck
Jeans in foreign countries?
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Question: How has this expansion into foreign markets affected the
company’s growth?
________________________________________________________
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Serving a “niche market:” NYDJ’s Tummy
Tuck Jeans serves a niche market of women over
40 years old.
Question: According to George Rudes, CEO of
NYDJ, why are women over 40 the target market
for Tummy Tuck Jeans?
_______________________________________
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Income Elasticity of Demand: This measures how flexible your
demand for a product is to economic changes. If money is tight and
the price doesn’t change, you will buy less. If cheaper substitutes are
available, you’ll buy those instead. If your economic condition is
good, price won’t be as great a factor and you will buy more.
Example: In good economic times, you might buy steak. In poor
economic times you’re more likely to buy hamburger.
“Inelastic demand” measures how inflexible your demand is to a
product as a market changes. For products where demand is in-elastic,
you don’t necessarily buy less as your income lowers. This is
especially true for items that are in high demand, are scarce with few
substitutes, and/or are a necessity. Example: Gasoline consumption
stays steady or declines only slightly even when price raises and/or
people’s income declines.
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Question: According to the news report, is
demand for Tummy Tuck Jeans elastic or inelastic in declining economic conditions?
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Question: What do you account for this situation?
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