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Elasticity
- 1. Microeconomics – economics on a small scale
- 3. Demand What is demand? 1. Desire 2. Ability 3. Willingness Demand is how much of a product would be bought at any given price
- 4. Demand Curve/Schedule – shows the quantity demanded at all possible prices $3.00 Price $1.00 D’ D D’’ 5 10 15 20 25 30 Quantity Demanded Law of Demand – As the price increases, the quantity demanded decreases and as the price decreases, the quantity demanded increases.
- 5. Demand Curve for Popcorn $3.00 Price $1.00 D’ D D’’ 5 10 15 20 25 30 Quantity Demanded (number of bags)
- 6. What Changes Demand? (Causes a new curve to be drawn) 1. Change in consumer tastes 3. Change in consumer income 5. Price of related goods
- 7. Demand Curve for Popcorn $3.00 Price $1.00 D’ D D’’ 5 10 15 20 25 30 Quantity Demanded (number of bags)
- 8. • Substitutes – goods/services that take the place of each other • Compliments – goods/services that go together • Inferior goods – when the price of something becomes so low that people don’t buy it because they think that something is wrong with it • Law of diminishing marginal utility – as additional units of a product are acquired the usefulness/satisfaction of that product decreases
- 9. • Joe eats one can of Spam per week. Recently, Joe received a significant raise in his income. Over the course of the following month, Joe purchased only one can of Spam. Does this situation contradict the law of demand? Why or why not?
- 10. Demand Elasticity -the extent to which a change in price changes quantity demand $3.00 Price $1.00 D 5 10 15 20 25 30 Quantity Demanded
- 11. Test for Determining Demand Elasticity • 3 Questions to ask – Can the purchase be delayed? – Does the purchase take up a large % of your income? – Are there any substitutes? If you answer ‘yes’ to 2 or more it is elastic, if you answer ‘no’ to 2 or more it is inelastic.
- 12. Supply – the amount that is available/offered for sale Law of Supply – As the price increases the quantity supplied increases. As the price decreases the quantity supplied decreases.
- 13. What can change supply? • Cost of Resources (Inputs) • # of Sellers • Gov’t Regulations • Technology • Productivity • Taxes • Producer Expectations
- 14. Supply Curve for Popcorn S’’ S $3.00 S’ Price $1.00 5 10 15 20 25 30 Quantity Supplied (number of bags)
- 15. Supply Elasticity -the extent to which a change in price changes quantity supplied S $3.00 Price $1.00 5 10 15 20 25 30 Quantity Supplied
- 16. Test for Determining Supply Elasticity Two Questions to Ask: 1. Is it easy to produce? 2. Can it be made quickly? If you answer yes to both questions it is an elastic supply. If you answer no to both questions it is an inelastic supply.