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Understanding Demand Elasticity: Strategies for Business Owners

Explore the concept of demand elasticity in business decisions, focusing on whether to increase prices or offer discounts to boost income. This guide delves into the nature of elastic and inelastic demand, explaining how external factors such as the availability of substitutes, purchase urgency, and expenditure impact consumer behavior. Learn how understanding these determinants can aid in making informed pricing strategies and driving revenue growth. Essential for business owners looking to optimize their income strategy.

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Understanding Demand Elasticity: Strategies for Business Owners

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  1. Warm Up Questions: • If you were a business owner and you wanted to increase your income which would you choose - increase your prices or have a sale? • Is it possible to make more money in both scenarios? Explain.

  2. Elasticity of Demand Chapter 4 Section 3

  3. Demand Elasticity • The extent to which a change in price causes a change in the quantity demanded. • Elastic • When a change in price causes a relatively large change in the quantity demanded • Inelastic • When a change in price causes a relatively small change in the quantity demanded

  4. Determinants of Demand Elasticity • Can a purchase be delayed? • Yes would indicate elastic. • Are adequate substitutes available? • Yes would indicate elastic. • Does the purchase use a large portion of income? • Yes would indicate elastic. • Two of three will determine elasticity.

  5. Elastic or Inelastic? • Table Salt • Can a purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income? • Elastic • Insulin • Can a purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income? • Inelastic • Gasoline from Kwik Trip • Can a purchase be delayed? • Are adequate substitutes available? • Does the purchase use a large portion of income? • Elastic

  6. Chapter 4 Section 3 Review • Page 104 • #3 – 11 • DUE TOMORROW • If you finish please work on your Chapter 4 Study Guide.

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