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Elasticity of Demand • Remember the law of demand says that if a price of a product goes up then the quantity demanded will go _________ down • And vice versa • Sometimes price changes will really change demand and other times price changes don’t affect demand as much • A buyer’s responsiveness to a price change (whether demand really changes or doesn’t change very much) is called ____________________________ Elasticity of Demand 3 Factors That Determine A Product’s Elasticity 1. Degree of need (want or luxury item) 2. Availability of substitutes 3. Expense (does it take a large portion of your income or a small one) Products can have either elastic or inelastic demand I. When a price change causes a big change in the quantity demanded, then that product hasElastic _________ ________. Demand Reasons why products have elastic demand (a,b,c on your outline) a. It’s a luxury item b. The product has many substitutes c. The product tends to be expensive Examples--• Name brand clothing • Luxury sports car $ 4 2 • i-phone 2 • Q D 10 The demand curve for an elastic product tends to be flat. II. When price change causes very little change in the quantity Demand demanded, then that product has Inelastic _______ __________ a. Need it! b. The product has few, if any, substitutes c. It is cheap Examples? • Gasoline • Electricity • Salt The demand curve for an inelastic demand product tends to be ____________________ steep ELASTIC OR INELASTIC? • • • • • • • • • Milk MP3 players Plastic surgery Electricity Cocaine Coffee College education Gasoline Gas at your favorite station • Cigarettes • High speed internet • • • • • • • • • Inelastic Elastic Elastic Inelastic Inelastic Inelastic ? Inelastic Elastic • ? • elastic
