MICROECONOMICS
1, Elastic - quantity demanded responds substantially to changes in price
2, Inelastic - quantity demanded responds only slightly to changes in price
3, What determines the price elasticity of demand?
Determinants
Available of close substitutes
Necessities vs. luxuries
Definition of the market
Time horizon
Inelastic – ít co dãn
Elastic – co dãn nhiều
Has no substitutes or hard to
find substitutes.
Eg: Sun cream
Although the price increases,
the quantity demanded of sun
cream doesn’t change
Necessity
Eg: Insulin is a necessary good
for people, so although P
increases, it causes little or no
decrease in quantity
demanded
Close substitutes are
available.
Eg: Breakfast Cereal
You can eat rice, noodle,
pancakes for breakfast
instead.
Luxury
Eg: Caribbean Cruises
When P rises  quantity
demanded falls
Broadly defined goods
Eg: Clothing
People need clothing to wear
every day, and it has no
substitutes.
In the short run
People cannot handle in the
short run.
Eg: the price of gasoline rises
 It’s hard to find another
good to replace gasoline in a
short time.
Narrowly defined goods
Eg: blue jeans
Has a lot of substitutes:
Shorts, T-shirts, Black
jeans,…
In the long run
When have long time,
people can buy smaller
cars to reduce the
quantity demanded, or
they can live closer to
where they work in the
long run.
How is total revenue affected by a good being elastic or inelastic?
Elastic:
- D curve is flat
- When the price rises, the quantity demanded falls significantly
 Revenue falls
Inelastic:
- D curve is steep
- When P rises, Qd falls slightly
 Revenue rises
How are necessities, luxuries and inferior goods
affected by income?
Income rises  necessities quantity demanded rises (inelastic)
Income rises  luxuries quantity demanded rises (elastic)
Income rises  inferior goods quantity demanded falls