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Elasticity of Demand

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Elasticity of Demand
Elasticity of Demand
In this lesson, students will identify
characteristic of elastic and inelastic demand.
Students will be able to define and/or identify
the following terms:
Elasticity
Elastic Demand
Inelastic Demand
Factors Affecting Elasticity of Demand
Gas prices keep rising but we keep
buying!
Doesn’t the law of demand state that
consumers buy less at higher prices?
So, why are we still buying gas?
Elasticity of Demand
• Elasticity of demand is a measure of how
consumers react to a change in price.
• Inelastic demand is demand that is not
very sensitive to a change in price.
• Elastic demand is demand that is very
sensitive to a change in price.
Think pants. These pants have
inelastic waistbands. The waistbands
do not change if people gain weight.
Our demand for gasoline is inelastic.
It does not change even with a price
increase.
Think pants again! Sweat pants have
elastic waistbands. The pants change
depending on the size of the person.
Our demand for apple juice
is elastic. If the price increases,
we will buy less. Our demand
changes.
So, why is our demand for apple juice
elastic and our demand for gasoline
inelastic?
Factors Affecting Elasticity of
Demand
• The following are factors that can affect
the elasticity of demand:
Availability of Substitutes
Relative Importance
Necessities Versus Luxuries
Time (It takes time to find substitutes.)
It’s obvious, isn’t it?
We can substitute orange juice
for apple juice.
Therefore, we deal with a price increase
by substituting one product for another
product.
However, we cannot
substitute milk
for gasoline.
What is this graph telling us about
elasticity of demand?
Questions for Reflection:
• State the Law of Demand.
• Why is the law of demand not always
true?
• Define elasticity.
• Provide one example of a good with
inelastic demand and explain why demand
for that good is inelastic.
• Provide one example of a good with
elastic demand and explain why demand
for that good is elastic.
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