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Understanding Demand Elasticity in Economics

Explore the concept of demand elasticity in economics and its impact on quantity demanded. Learn about elastic, inelastic, and unit elasticity with examples like fresh fruit and gasoline. Discover the Total Expenditures Test and determinants influencing elasticity.

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Understanding Demand Elasticity in Economics

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  1. Elasticity of Demand Chapter 4 Section 3

  2. Demand Elasticity • Demand Elasticity: the extent to which a change in P causes a change in the Q demanded 3 types • 1. Elastic = small change in P causes a large change in Q demanded • example = fresh fruit

  3. 2. Inelastic = a change in P causes a smaller change or no change in Q demanded • Example: table salt or gasoline • 3. Unit = % change in P = % change in Q demanded

  4. Total Expenditures Test • Multiply the price by the quantity

  5. Specific vs. General Market Examples: • Specific: Exxon Gas Station • If P increases, people would go somewhere else, therefore it is elastic (flexible) • General: All Gas Stations • If P increases, people will have to pay the increase, therefore it is inelastic (nonflexible)

  6. Determinants of Demand Elasticity • If 2 or more NO = usually inelastic • If 2 or more YES = usually elastic

  7. Determinants of Elasticity

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