Demand: Elastic and Inelastic

1. Demand: Elastic and Inelastic

2. What couldn’t you live without?

3. Price Elasticity Price You will pay anything to drink….Which is why Governments control water supplies…Price inelastic! Quantity

4. Price Elasticity Price If the price of a cup of coffee goes up too much you will not get it… You make a cup at home. This is Price elastic. Quantity

5. Price Elasticity Many of Apple’s products are relatively inelastic. They aim for a higher end of the market and do not “race to the bottom” on price to gain market share. People pay approx. $100-$300 more than a standard tablet for an iPad. So the price is inelastic. Price Quantity

6. Elastic/Inelastic • Demand elasticity is a measure of how much the quantity demanded will change if another factor changes. • The responsiveness of the quantity demanded in relationship to the price

7. Estimating the Elasticity of Demand

8. Total Revenue Test One example is the price elasticity of demand; this measures how the quantity demanded changes with price. This is important for setting prices so as to maximize profit. What is happening to Revenue when there is a change in price? Price X Quantity = Total Revenue

9. So... what's the dealio? Changes in Total Revenue can indicate either Inelastic or Elastic demand for a product.

10. Wait... what? Inelastic demand- the quantity demanded only slightly responds to changes in price. Price effect is weak.

11. Wait... what? Elastic demand- the quantity demanded significantly responds to changes in price. Price effect is strong.

12. ELASTIC INELASTIC D $ $ D 0 0 # #

13. Example, please? INELASTIC Demand TOTALREVENUES Price Qty D # $50.00 $60.00 $70.00 100 .50 .75 80 $1.00 70

14. Example, please? ELASTIC Demand TOTALREVENUES Price Qty D # $200.00 $160.00 $100.00 40 $5.00 $8.00 20 $10.00 10

15. Your turn, in your groups do the following... Create a demand schedule that shows INELASTICdemand as measured by Total Revenue. Don’t Scare off Demand 5 prices minimum T.R. # D $

16. Your turn, in your groups do the following Create a demand schedule that shows ELASTICdemand as measured by Total Revenue. Scare the customer 5 prices minimum T.R. # D $

17. Now in your groups do the following Then graph both Demand schedules. Your curves should look "typically" Inelastic or Elastic.

18. Once again in your group • Create 2 separate Model Templates for Elastic and Inelastic demand • ELASTICITY/INELASTICITY of DEMAND • Definition • What does the Total Revenue Test demonstrate? • Symbol • Examples (3)

19. Continuing in your groups • Looking at the list of goods and service provided: • On the left identify if they have and elastic or inelastic demand. • On the right, indicate the most important reason from the chart provided

20. Create Headline and Explanation • Part I: Create 2 separate Headlines. Each headline should reflect the Inelastic or Elastic Demand/Price of a good or service • PART II: After writing the headlines for Inelastic/Elastic Demand, pick one and write a brief 150-word-or-less explanation of why buyers of this type of good or service will only slightly change the quantity demanded of it when its price changes. Do this only one of demand headlines.