Demand: Elastic and Inelastic

What couldn’t you live without?

Price Elasticity

Price

Quantity

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

Price Elasticity

Price

Quantity

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.

Price Elasticity

Price

Quantity

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.

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

Estimating the Elasticity of DemandDetermina

nts of elasticity

Yes (elastic)No

(inelastic)

Fresh tomatoes, corn, or green beans

Gasoline from a specific

gas station

Gasoline in general

Services of medical doctors

Insulin Butter

Can the purchase

be delayed?

Are adequate substitute

s available?

Does a purchase

use a large

portion of income?

Is it ELASTIC or INELASTIC

?

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

So... what's the dealio?

Changes in Total Revenue can indicate either Inelastic or Elastic demand for a product.

Wait... what?

Inelastic demand- the quantity demanded only slightly responds to changes in price.

Price effect is weak.

Wait... what?

Elastic demand- the quantity demanded significantly responds to changes in price.

Price effect is strong.

DD

INELASTIC ELASTIC

$ $

# #0 0

Example, please? INELASTIC Demand

Price Qty D #TOTALREVENUES

.50

.75

$1.00

100

80

70

$50.00

$60.00

$70.00

Example, please? ELASTIC Demand

Price Qty D #TOTALREVENUES

$5.00

$8.00

$10.00

40

20

10

$200.00

$160.00

$100.00

Your turn, in your groups do the following...

Create a demand schedule that shows INELASTIC demand as measured by Total Revenue.

Don’t Scare off Demand

5 prices minimum

$ # D T.R.

Your turn, in your groups do the following

Create a demand schedule that shows ELASTIC demand as measured by Total Revenue.

Scare the customer

5 prices minimum

$ # D T.R.

Now in your groups do the following

Then graph both Demand schedules.

Your curves should look "typically" Inelastic or Elastic.

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)

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

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.