-A measure of how consumer react to a change in price.
Elastic Demand
-Demand that is very sensitive to a change in price.-
- E>1 (Elastic greater than 1)
-always greater than one
- product is not a necessity and there are available substitutes
Inelastic Demand
-Demand that is not very sensitive to a change in price
- E<1 (Elastic is less than 1)
-always less than one
-few or no substitutes
-people will buy no matter what
Unit/ Unitary Elastic
- E=1 (Elastic equals 1)
Examples : Elastic Demand Inelastic Demand
*soda *gas
*steaks *salt
*candy *insulin/medicine
*fur coats *milk
*toothpaste
Price Elasticity of Demand (PED)
STEP 1: Quantity
New quantity-old quantity
--------------------------------- = quantity
old quantity
STEP 2: Price New Price- old price
-------------------------- = price
old price
STEP 3: PED % change in quantity in demand
----------------------------------------- = PED
% change in price
Total Revenue- total amount of money affirmed receives from selling goods and services
TR= P * Q
P= price
Q= quantity
Examples questions:
1. The price of Venti Starbucks lattes went from $3.94 to $4.02 this past summer, and the amount of daily sales of Venti- sized lattes went from 242/day to 228/day. Are the lattes elastic, unitary elastic or inelastic?
STEP 1: Quantity
New quantity-old quantity
--------------------------------- = quantity
old quantity
228- 242
------------ = -.06= 6%
242
STEP 2: Price
New Price- old price
-------------------------- = price
old price
4.02-3.94
------------- = .02= 2%
3.94
STEP 3: PED
% change in quantity in demand-------------------------- = price
old price
4.02-3.94
------------- = .02= 2%
3.94
STEP 3: PED
----------------------------------------- = PED
% change in price
-5.79
--------- = 2.85 = 3
2.03
This problem is an Elastic demand, because 3 is greater than 1.
3 elastic > 1
2. The price of Moo iced coffee drink has risen from $1.50 to $1.70 per 500 ml container. Sales at your corner store of "Moo" fall from 500 container per week to 300 containers per week.
STEP 1 : Quantity 300- 500
-------------- = .4= 40%
500
STEP 2: Price 1.70- 1.50
-------------- = .13= 13%
1.50
STEP 3: PED 40
------ = 3.08
13
This problem is an elastic demand, because it is greater than 1.
3 elastic > 1
******************ONLY HAVE 2 NUMBERS AFTER DECIMAL PLACES***************
How did the discussion in class and your note taking skills, help you to understand how to complete elastic demand problems efficiently? Also, how were you able to identify the difference between elastic and inelastic? Would this be a struggle for you if you were working without your notes?
ReplyDelete