Chapter 4: Demand Section 3. Copyright © Pearson Education, Inc.Slide 2 Chapter 4, Section 3...
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Transcript of Chapter 4: Demand Section 3. Copyright © Pearson Education, Inc.Slide 2 Chapter 4, Section 3...
Chapter 4: DemandChapter 4: DemandSection 3Section 3
Chapter 4: DemandChapter 4: DemandSection 3Section 3
Copyright © Pearson Education, Inc. Slide 2Chapter 4, Section 3
ObjectivesObjectives
1. Explain how to calculate elasticity of demand.
2. Identify factors that effect elasticity.
3. Explain how firms use elasticity and revenue to make decisions.
Copyright © Pearson Education, Inc. Slide 3Chapter 4, Section 3
IntroductionIntroduction
• Factors that affect elasticity of demand?
– Original price and how much you want a particular good are both factors that will determine your demand for a particular product.
Copyright © Pearson Education, Inc. Slide 4Chapter 4, Section 3
Consumer ResponseConsumer Response
– Your demand for a good that you will keep buying despite a price change is inelastic.
– If you buy much less of a good after a small price increase, your demand for that good is elastic.
Copyright © Pearson Education, Inc. Slide 5Chapter 4, Section 3
Elastic DemandElastic Demand
• Elastic Demand comes from one or more of these factors:
– The availability of substitute goods– A limited budget that does not allow for price
changes– The perception of a good as a luxury item.
Copyright © Pearson Education, Inc. Slide 7Chapter 4, Section 3
Elasticity and RevenueElasticity and Revenue
• DO NOT WRITE! Elasticity of demand determines the effect of a price change on total revenues.
– Why will revenue fall if a firm raises the price of a good whose demand is elastic?
– What happens to total revenue when price decreases, but demand is inelastic?
