1. Elasticity of Demand

measure of how responsive consumers are to price changes

Elasticquantity demanded changes greatly as price changes - SO, A SMALL CHANGE IN PRICE WILL CAUSE PEOPLE TO EITHER STOP BUYING (HIGHER PRICE), OR START BUYING IN LARGER QUANTITIES (LOWER PRICE)

Inelasticquantity demanded changes little as price changes - THIS MEANS THAT CONSUMERS TYPICALLY NEED THE ITEM AND ARE THUS FORCED TO PAY THE PRICE NO MATTER WHAT. THINK ABOUT MEDICINE, LIKE INSULIN.

A product like gasoline, where the quantity demanded changes little as price changes, would be considered ________________________ demand.

a. unit elastic

b. inelastic

c. elastic

2. EXAMPLE: Elasticity of Demand for Goods and Services

• Goods with substitutes have elastic demand since choices are available
• Needed goods without substitutes have inelastic demand
• Elasticity changes if substitutes created or goods taken off market
• Unit elasticsame percentage change in price and quantity demanded

useful concept for determining elasticity of demand

On a recent trip to the grocery store, you decide not to buy Coca Cola because you believe the price is currently too high. Your demand for this good would be considered (INELASTIC, ELASTIC, OR UNIT ELASTIC) .

a. unit elastic

b. elastic

c. inelastic