Aim: How does elasticity effect demand?

Elasticity- a measure of responsiveness that tells us how a dependent variable such

as quantity responds to a change in an independent variable such as price
(how quantity respond to price)
(change in price causes a change in demand)
Elasticity of Demand- a price increase cause a large change in demand
Ex. Luxury goods (wants)
Inelasticity of Demand- a price increase cause little change in
demand
Ex. Food items (needs)
Unit elastic- a % change in quantity equals a % change in price
Determinants (changes) of Demand Elasticity
Delays
If a product can not be put off, it is a need, so it inelastic.
Ex. medications
If a product can be put off or postpone, it is not need to live, so it is
elastic
Ex. Nails or hair appointments
Substitutions- the availability of product determines its
elasticity
The fewer substitutions available the more inelastic a product
becomes
Small price change will not cause consumers to switch products
The more substitutions available the more elastic a product becomes
Small price changes will cause consumers to switch products
Income-How much of your income is used for a product?
If your purchase (demand) uses a large portion of your income the
product is elastic (with reservations)
If your purchase (demand) uses a small portion of your income the
product is inelastic (with reservations)
How do I find the elasticity of a product?
Elastic Formula
PED=Change in demand (quantity)
Change in price
Where % change in demand (quantity) is less than % change in price; A
product that is less than 1 is Inelastic
Where % change in demand (quantity) is greater than % change in price; A
product that is 1 or more is Elastic