Elasticity Elasticity of Demand Elasticity of demand is

Elasticity

Elasticity of Demand Elasticity of demand is a measure of how much quantity demanded changes in response to changes in price.

Elasticity % change in quantity % change in price

Elasticity Elastic: A product is elastic when % change in quantity demand is greater than % change in price. Demand for the product “reacts” to the price change by “bending” easily. Much like a rubber band easily bends when you push on it very little.

Elasticity Products that are elastic are usually products that you can do without (luxuries) or products for which there a lot of substitute goods Examples Car stereos movie tickets Hot Dog Buns

Elasticity Inelastic: A product is said to be inelastic if % change in quantity demand is less than % change in price. Demand for the product does not “bend” very easily. Much like pushing on a brick wall or a text book.

Elasticity Products that are inelastic are usually things we need to survive or those things for which there are not many substitute goods. Examples: Gas Bread Some medicines

Elasticity Unitary Elastic (or Unit Elastic): A product is said to be unit elastic is % change in quantity demand is equal to % change in price.

Factors that Affect Demand Elasticity Necessity or Luxury Necessities tend to be inelastic Luxuries tend to be very elastic

Factors that Affect Demand Elasticity Availability of Substitutes The more readily available the more elastic a good is Example: If the price of tickets to concerts becomes too high. People will go to the movies instead.

Factors that Affect Demand Elasticity Relative Importance How much of your income is devoted to the good? If it is a high percentage, then a small change in price will probably effect demand greatly If it is a small percentage, then a change in price might not even be noticed

Factors that Affect Demand Elasticity Time Elasticity may change as time passes. Some items are inelastic in the short term, but elastic in the long term In fact, time makes all products elastic One example might be gasoline. How?

Elasticity Reminders Inelastic Unit = <1 Elastic = 1 Elastic = >1 https: //youtu. be/HHcbl. Ixi. AAk

Elasticity of Supply Is a measure of how quantity Supplied responds to changes in price. Operates exactly like Elasticity of Demand Inelastic - price changes have little of no effect on supply Elastic – price changes have dramatic effect of supply

Factors that Affect Supply Elasticity The biggest factor in determining the elasticity of the supply of a product is Time. In specific, how much time will it take to shift from making one product to something else. If it is easy to shift, the supply will be elastic. If it is hard to shift, the supply will be inelastic. Example?

Factors that Affect Supply Elasticity However, just like demand, in the long run, supply for all products is elastic.