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Demand Elasticity

Demand Elasticity. Unit Two, Lesson Three Economics. Look at the Following Chart and Fill in Your Qd for One Year. Product Beg. Price Qd for 1 yr Salt $1.50/lb Car $30,000 Fresh veggies $.50/lb Pencils $1.00/pack 10 DVD $12 Utilities $60/mo (water and electricity).

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Demand Elasticity

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  1. Demand Elasticity Unit Two, Lesson Three Economics

  2. Look at the Following Chart and Fill in Your Qd for One Year Product Beg. Price Qd for 1 yr Salt $1.50/lb Car $30,000 Fresh veggies $.50/lb Pencils $1.00/pack 10 DVD $12 Utilities $60/mo (water and electricity)

  3. Now show how much you would buy given the price changes Product Beg. Price Qd for 1 yr New Price New Qd Salt $1.50/lb $3.00 Car $30,000 $40,000 Fresh veggies $.50/lb $3.00/lb Pencils $1.00/pack 10 $3.00/pack 10 DVD $12 $20 Utilities $60/mo $500/mo (water and electricity)

  4. Demand Elasticity • Demand elasticity is the extent to which a change in price causes a change in quantity demanded • How much does price influence how much we buy of a product

  5. Demand Elasticity • Elastic Demand—when a given change in price causes a relatively larger change in Qd • Inelastic Demand—when a given change in price causes a relatively smaller change in Qd • Unit Elastic—when a given change in price causes a proportional change in Qd

  6. Determinants of Demand Elasticity • Can the purchase be delayed? --If yes, demand tends to be elastic --If no, demand tends to be inelastic • Are adequate substitutes available? --If yes, demand is usually elastic --If no, demand is usually inelastic

  7. Determinants of Demand Elasticity • Does the purchase use a large portion of income? --If yes, demand tends to be elastic --If no, demand tends to be inelastic

  8. Graphical Representations

  9. Graphical Representations

  10. Examples • What is something that you would still buy, even if there was a drastic increase in price? • What is something you would stop buying or limit your purchase of if there was just a small change in price?

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