1 / 13

Responding to Price Changes (Elasticity of Demand & Supply)

Responding to Price Changes (Elasticity of Demand & Supply). Lesson 2.5. The Law of Demand. The quantity demanded varies inversely with price, other things constant (a.k.a. Price Effect) Price = Quantity demanded Price = Quantity demanded. Elasticity of Demand.

sylvia
Télécharger la présentation

Responding to Price Changes (Elasticity of Demand & Supply)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Responding to Price Changes (Elasticity of Demand & Supply) Lesson 2.5

  2. The Law of Demand • The quantity demanded varies inversely with price, other things constant (a.k.a. Price Effect) Price = Quantity demanded Price = Quantity demanded

  3. Elasticity of Demand • Law of Demand does not specify the degree to which the quantity demanded will change. • Degree of Change = QD vs. Price Changes • Demand is elastic if QD changes significantly as price changes. • Demand is inelastic if QD changes little as price changes.

  4. Red Bull • If price of Red Bull increased from $2.00 to $2.50, would you still purchase from the vending machine? • At what price would you change your behavior? • This is price elasticity – how producers and consumers react to a change in price.

  5. Elastic vs. Inelastic • Rubber Band – doesn’t take much effort to change its shape. This means you are RESPONSIVE to price changes (elasticity). • Pencil – takes much more effort to break the pencil than to change the shape of a rubber band. This means you are not RESPONSIVE to price changes (inelastic).

  6. Estimating Elasticity • Salt – no substitutes, small portion of income, and a necessity. All of these say that SALT is considered INELASTIC. • Sports Car – substitutes available, large portion of your income, and a luxury item. All of these say that a SPORTS CAR is considered ELASTIC.

  7. Handouts • Elasticity Scenarios • Will quantity demanded be elastic or inelastic? Which factors play a role? • Justify your decisions with sound economic reasoning.

  8. Demand Curves • Why do the curves look different? • Talk to those around you and determine why they look different? • Price elasticity can be zero if someone won’t buy a product. • Reasons: cultural, health, environmental, political, moral, etc.

  9. Inelastic Demand • Price change has little or no effect on QD. • Line will be steep!

  10. Elastic Demand • Price change has a huge change on QD. • Line will be more gradual!

  11. Total Revenue Test • Elasticity of Demand • I will help you with the first one.

More Related