1 / 64

Elasticity

Elasticity. Elasticity. Measures how much buyers and sellers respond to a change in market conditions Price changes Income Changes All other market changes. Elastic Good. The change in quantity is more than the change in the market

urbana
Download Presentation

Elasticity

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Elasticity

  2. Elasticity • Measures how much buyers and sellers respond to a change in market conditions • Price changes • Income Changes • All other market changes

  3. Elastic Good • The change in quantity is more than the change in the market • Quantity for a good is substantially impacted by a change in market conditions

  4. Inelastic Good • The change in quantity is less than the change in the market • Quantity for a good is not substantially impacted by a change in market conditions

  5. Factors that determine elasticity for Demand

  6. Amount of Substitutes The less substitutes there are… The more substitutes there are… Inelastic Elastic

  7. Necessities vs. Luxuries Your needs Your luxuries or wants Inelastic Elastic

  8. VS

  9. Definition of the Market Broadly Defined Market Narrowly Defined Market Inelastic Elastic

  10. Broadly Defined Market Narrowly Defined Market Inelastic Elastic

  11. Factors that determine elasticity of Supply

  12. The type of resources that are used to produce the product play a major role in the elasticity of the good or service

  13. Resources and Elasticity The harder the good or service is to produce, the more inelastic it is The easier the good or service is to produce, the more elastic it is.

  14. BRAIN BUSTA! Think of an apple. What is the major resource that determines whether an apple is elastic or inelastic? TIME!

  15. Short Run vs. Long Run Elasticity Short Run Long Run Supply is usually elastic • Supply is usually inelastic

  16. Also, any factors that impact the factors of production can effect elasticity of supply

  17. Is the supply inelastic or elastic?

  18. Price Elasticity • A measure of how much quantity of a good responds to a change in the price of that good. In other words, the price change is the “change in the market.” • Price Elasticity of Demand • How quantity demanded is impacted • Price Elasticity of Supply • How quantity supply is impacted

  19. For example • Since the price of gasoline changes all the time but the quantity demanded for gasoline stays almost always the same, gasoline is price inelastic.

  20. Partner Activity • On a separate sheet of paper, write down any good or service you can think of. • Then, specify whether the price increases or decreases • Exchange your paper with another group • Now, identify the price elasticity of supply and demand. Also, explain your answer. Write your names on the sheet that you answered.

  21. Calculating Elasticity

  22. % Change in Quantity % Change in Price

  23. Inelastic or Elastic? • If elasticity is greater than 1 = elastic • If elasticity is less than 1 = inelastic • If elasticity is 1 = unit elastic • If elasticity is 0 = perfectly inelastic • If elasticity is infinite = perfectly elastic

  24. What do they mean? • Perfectly Inelastic • Quantity stays the same no matter the price change. • Perfectly Elastic • Quantity changes infinitely with any change in price. • Unit Elastic • The percent change in quantity = the percent change in price

  25. Practice • The price of an ice cream cone increases by 40% and the amount the market buys falls by 60% • Compute the price elasticity of ice cream cones • What is the price elasticity? Elasticity = 1.5, therefore ice cream is elastic

  26. Another way to look at this… • The price of an ice cream cone increases by 40% and the amount the market buys falls by 60% Since the percent change in quantity is greater than the percent change in price, we can assume the good is elastic.

  27. Midpoint Method (arc method) • Used to identify % change

  28. Computing by looking at market graph Let’s say the price drops from $5 to $4. Is this good price elastic or price inelastic at that price change? Price $5 4 Demand Price Elasticity = 3 (ignore all negatives) Demand is price elastic. Quantity 0 50 100

  29. Worksheet Bonus Questions • At what price range is the good inelastic? • At what price range is the good elastic? • Why do you think this happens?

  30. Elasticity and Graphing

  31. Challenge • Graph a typical demand curve for gasoline in the United States of America • Graph a typical demand curve for Levi’s jeans. • Graph a typical supply curve for doctors.

  32. Demand $5 4 1. An increase in price . . . 100 2. . . . leaves the quantity demanded unchanged. Challenge: When can this happen? The Price Elasticity of Demand (a) Perfectly Inelastic Demand: Elasticity Equals 0 Price Quantity 0

  33. No substitutes!!

  34. 1. At any price above $4, quantity demanded is zero. $4 Demand 2. At exactly $4, consumers will buy any quantity. 3. At a price below $4, quantity demanded is infinite. Challenge: When can this happen? The Price Elasticity of Demand (e) Perfectly Elastic Demand: Elasticity Equals Infinity Price Quantity 0 (immeasurable)

  35. Super Duper Paper Clip Company • Many other companies that sell the exact same product • If price is raised by the smallest amount, than buyers buy from another company • If price is slightly lowered, than all buyers will buy from Super Duper Paper Clip Company.

  36. ALL of the same rules apply when looking at supply!

  37. Owner Challenge!!!

  38. Looking at the information on the next slide, at what price would you earn the most revenue?

  39. Do this! Total Revenue Price Quantity Demanded

  40. $15

More Related