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Question: Are all products subject to the laws of supply and demand? Why or why not?

Economics – 3/14/08. Question: Are all products subject to the laws of supply and demand? Why or why not? What products may not be effected by the laws of supply and demand? Why?. gas for your car?. cigarettes if you are addicted to smoking?. salt?. a car?. a Cadillac Escalade?.

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Question: Are all products subject to the laws of supply and demand? Why or why not?

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  1. Economics – 3/14/08 Question: Are all products subject to the laws of supply and demand? Why or why not? What products may not be effected by the laws of supply and demand? Why? gas for your car? cigarettes if you are addicted to smoking? salt? a car? a Cadillac Escalade?

  2. Draw two supply/demand charts. • Using these charts, show what changes you think happened in the scenario on the following screen. • Which of the determinants caused this change? Explain.

  3. High Definition DVDs are created in two different formats: HD-DVD and Blu-Ray. Most movies are created in both formats. However, last month Wal-Mart announced that it would only sell movies in the Blu-Ray format. P P S S D D Q Q HD-DVD Players Blu-Ray Movies

  4. Elasticity of Demand What is Elasticity of Demand? - a measure of consumer responsiveness to price changes In other words: If the price of a good changes, how much will people react? Will they keep buying that product?

  5. Elasticity of Demand Factors of elasticity 1. Availability of substitutes 2. Percentage of total income 3. Length of time In my view: all luxury items are elastic

  6. Elasticity of Demand Test for Elasticity of Demand: “When prices and total revenue move in opposite directions demand is elastic” In other words: If more people buy something when the price goes down and less people buy something when the price goes up, that product is elastic.

  7. Elasticity of Demand Are these elastic or inelastic?  airplane tickets? health care? ? car tires? cigarettes?  fresh tomatoes movies?

  8. Elasticity of Demand Formula showing level of elasticity Change in Quantity (%) Change in Price (%) If E > 1 then product is elastic If E < 1 then product is inelastic If E = 1 then product is unitary E=

  9. Elasticity of Demand Q: This is perfectly elastic demand. Why? A: Price never changes (quantity is unpredictable) P S D Q

  10. Elasticity of Demand Q: This is perfectly inelastic demand. Why? A: Quantity demanded does not change, no matter what the price is. P S D Q

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