Step 3 - What determines E L A S T I C I T Y?

As we have seen above it is important to a company to have an idea of the value of the elasticity of demand of its good or service as it will affect what happens to their total revenue as price changes. What should the company aim to do with their price in each of the circumstances below?

Elasticity

Which change in price would increase total revenue??

(Increase or decrease?)

Elastic

Inelastic

If the company wants to estimate the value of the price elasticity of their product, then they need to judge it against the following criteria:

Number of ____________________:

Strength of ___________________:

Luxuries vs. ___________________:

Percentage of ________________ spent on good:

_____________ to adjust:

Judge the products in the table below to decide whether you think they will be elastic or inelastic:

Product

Elastic or inelastic?

Why?

Salt

Hawaiian Vacation

Apple iPhone

Cigarettes

Tap Water

Gasoline

Dasani Water