QUESTION:
• HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE PRICE OF THE GOOD/SERVICE
CHANGES?
If price falls by $1:
Will Qd increase
proportionally the
same, less, or
more?
Ep = measures the responsiveness of
quantity demanded of a good or service
to changes in price.
E.g. If Metro raised the price of
their tickets will they get more
revenue?
MIDPOINT FORMULA
THE ANSWER
0
Inelastic
1
Infinity
Unitary
Elastic
EXAMPLES
• MARKET DEMAND FOR PEACHES ARE AS FOLLOWS;
• $2/KG – 400KG ARE PURCHASED, $2.50/KG – 300KG ARE PURCHASED, $3/KG - 290KG ARE PURCHASED
WORK OUT THE ELASTICITY OF DEMAND FOR PEACHES BETWEEN $2.50 AND $3. SHOW YOUR WORKING
0.19
EXAMPLES
When Joey Sword guy dropped the price of
his swords by 20% Quantity purchased
increased by 9%.
Explain to Joey, using relevant economic
data, why this may have been a poor decision
0.45
EXAMPLES
BOBBY BLUE EYES HAS BEGUN SELLING HIS NEW JANDELS.
FROM HIS MARKET RESEARCH HE HAS FOUND OUT THE FOLLOWING
ABOUT HIS PRODUCT!
If he sells them for $20 he will sell 2001 units but if he
sells them for $15 he will sell 3700 units
Advise him on the elasticity of demand for his product and what he
should do as a result of this information
2.08
Why inelastic or elastic?
•No close substitutes
•Small percentage of total
expenditure
•Necessary
•Not easily postponed
•Many close substitutes
•Large percentage of total
expenditure
•Luxury
•Easily postponed
CRITERIA
• L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS
• L.O; - CALCULATE CROSS ELASTICITY OF DEMAND
• UNDERSTAND THE USES OF CROSS ELASTICITY OF DEMAND
CROSS ELASTICITY OF DEMAND
Is beer a substitute for wine?
If it is how strong is the
relationship?
Is beer a compliment for pizza?
If it is how strong is the relationship?
CROSS ELASTICITY OF DEMAND
The responsiveness of quantity
demanded of one good,
to the change in price of
another.
FORMULA
Ecross =
Q2 good a – Q1 good a
(Q1 good a + Q2 good a)
2
P2 good b – P1 good b
(P1 good b + P2 good b)
2
WORKED QUESTION
WE KNOW THAT THE ORIGINAL PRICE OF DIRTY UNDIES IS $9 AND THE NEW PRICE OF DIRTY UNDIES IS $10.
THE QUANTITY DEMANDED OF Y-FRONTS WHEN THE PRICE OF DIRTY UNDIES IS $9 IS 150 AND WHEN THE
PRICE IS $10 IS 190.
YOU SHOULD HAVE THESE FOUR FIGURES WRITTEN DOWN:
ANSWER
• 2.4
STRONG
-2
WEAK
-1
WEAK
0
1
STRONG
2
CRITERIA
• L.I; TO LEARN ELASTICITY IN RELATION TO PRODUCTS
• L.O; - CALCULATE INCOME ELASTICITY OF DEMAND
• UNDERSTAND THE USES OF INCOME ELASTICITY OF DEMAND
INCOME ELASTICITY
•WHEN YOUR INCOME GOES UP WHAT ARE YOU
LIKELY TO BUY??????
INCOME ELASTICITY OF DEMAND
MEASURES THE RESPONSIVENESS OF
QUANTITY DEMANDED TO CHANGES IN
DISPOSABLE INCOME
REMINDER
I got more
disposable
income. What
should I
buy????
WHAT ARE THE 3 TYPES OF GOODS?
Normal
Necessity
Luxury
Inferior
Inferior
I got more
disposable
income. What
should I
buy????
Necessity
Luxury
Inferior
Example
Tori gets an increase in pay from
$150 to $200. Her demand for mince
pies increases from 3 to 5
FORMULA
Ey
=
Q2– Q1
Y2– Y1
(Q1 + Q2)
(Y1 + Y2)
2
2
1.75
Normal
-2
-1
Inferior Good
0
1
Necessity
2
Luxury
CRITERIA
• L.I; TO LEARN ELASTICITY IN RELATION TO SUPPLIERS OF PRODUCTS
• L.O; - CALCULATE INCOME ELASTICITY OF DEMAND
• UNDERSTAND THE USES OF INCOME ELASTICITY OF DEMAND
SUPPLY OVER TIME!
ELASTICITY'S FOR SUPPLY CURVES WILL
CHANGE OVER TIME. THIS IS DUE TO THE
AVAILABILITY OF PRODUCTS ON THE MARKET
AT CERTAIN TIMES!
THE CAKE TIN!!!!
Imagine:
Silverstream year 13
Economics class
have got the go
ahead to organise
10 of the world’s
best bands to
perform at the cake
tin for 5 hours!
THE SUPPLY OF TICKETS
THE EVENT IS TO BE HELD
ON THE 22ND OF JUNE
2014
SHORT-RUN SUPPLY
At least 1 input is fixed.
The firm is restricted in its
ability to change output.
The supply curve is
relatively inelastic. We are
unable to change supply to
a large degree!
MOMENTARY SUPPLY
THE EVENT IS
TO BE HELD
TONIGHT!
MOMENTARY SUPPLY
Supply is fixed regardless
of the price. This is
illustrated by a perfectly
inelastic curve. Firms are
unable to change any
inputs (factors)
THE SUPPLY OF TICKETS
What would the supply
hizzle look like if the
snoop D.O. double G was
featuring at the rock dizzle
manizzle????
THE EVENT IS
IN 10 YEARS
TIME!!!
LONG-RUN SUPPLY
All inputs are variable,
therefore the firm can be
more adaptable and more
efficient. Supply is more
elastic.