1. Ch. 4, Section 3 Elasticity of Demand

2. Elastic demand: when a given change in P causes a relatively larger change in QD % change in QD was relatively larger than % change in P Figure 4.5 (pg. 103) Many substitutes; non-necessities Ex: food items, movie tickets, restaurants Inelastic demand: a given change in P cause a relatively smaller change ( and sometimes no change) in the QD Figure 4.5 Very little of no subs.; necessities Demand Elasticity: the extent to which a change in price causes a change in the QD

3. Elasticity (con’t) • Unit Elastic: a given change in P causes a proportional change in QD • The % change in Q roughly equals the % change in P • Figure 4.5, Panel C

4. Total Expenditures Test • Total Expenditures are found by multiplying the P of a product by the QD for any point along the D curve • P x QD= total expenditures • 3 Results • Why is this important? • profits

5. Determinants of Elasticity • Can the purchase be delayed? Inelastic: No- example: insulin for a diabetic, cigarettes for a smoker Elastic: Yes- sub. it w/ something else • Are adequate substitutes available? Inelastic: No Elastic: yes • Does the purchase use a large portion of income: If yes, the product tends to be elastic. If no, the product tends to be inelastic • Figure 4.6