ELASTICITY OF DEMAND!! QUESTION: HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE PRICE OF THE GOOD/SERVICE CHANGES? If price falls by $1: Will Qd.

ELASTICITY OF DEMAND!!

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 1Infinity0 UnitaryElastic Inelastic

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 compliment for pizza? If it is how strong is the relationship? Is beer a substitute for wine? 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 aP2 good b P1 good b (Q1 good a + Q2 good a)(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 WEAK 12-20

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? NormalInferior NecessityLuxuryInferior

I got more disposable income. What should I buy???? NecessityLuxuryInferior

FORMULA Ey = Q2 Q1 Y2 Y1 (Q1 + Q2)(Y1 + Y2) 2 2 Example Tori gets an increase in pay from $150 to $200. Her demand for mince pies increases from 3 to 5

1.75 Luxury Inferior Good Necessity 2 1-20 Normal

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 worlds best bands to perform at the cake tin for 5 hours!

THE SUPPLY OF TICKETS THE EVENT IS TO BE HELD ON THE 22 ND 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 THE EVENT IS IN 10 YEARS TIME!!! What would the supply hizzle look like if the snoop D.O. double G was featuring at the rock dizzle manizzle????

LONG-RUN SUPPLY All inputs are variable, therefore the firm can be more adaptable and more efficient. Supply is more elastic.

ELASTICITY OF DEMAND!! QUESTION: HOW MUCH DOES THE QUANTITY DEMANDED CHANGE WHEN THE PRICE OF THE GOOD/SERVICE CHANGES? If price falls by $1: Will Qd.

Documents

postponed slide

disposable income slide

midpoint formula slide

q2 good ap1 good b p2

examples market demand

price falls

responsiveness of quantity

new price of dirty undies