Elastic and Inelastic Demand necessities Unit elastic Inelastic Elastic Price elasticity 0 2 3 of demand Chapter 4: Elasticity Slide 16
MB MC Chapter 4: Elasticity Slide 16 Elastic and Inelastic Demand 3 Price elasticity of demand Inelastic Unit elastic Elastic 0 1 2 necessities Luxuries
Price Elasticity of Demand Example 4.1 a What is the elasticity of demand for pizza? ● Originally ◆ Price=$1/sice Quantity demanded=400 slices/day New ◆ Price=$0.97/s|ice o Quantity demanded= 404 slices/day, then % Change in Quantity 1 Inelastic Change in Price 3 Chapter 4: Elasticity Slide 17
MB MC Chapter 4: Elasticity Slide 17 Price Elasticity of Demand ◼ What is the elasticity of demand for pizza? ⚫ Originally ◆ Price = $1/slice ◆ Quantity demanded = 400 slices/day ⚫ New ◆ Price = $0.97/slice ◆ Quantity demanded = 404 slices/day, then :Inelastic 3 1 % Change i nPrice % Change i nQuantity = Example 4.1
Price Elasticity of Demand Exercises 4.1 What is the elasticity of season ski passes? ● Originally! ◆ Price=$400 o Quantity demanded = 10,000 passes/year ●NeW ◆ Price=$380 Quantity demanded =12,000 passes/year, then Change in Quantity 20 Elastic % Change in Price 5 Chapter 4: Elasticity Slide 18
MB MC Chapter 4: Elasticity Slide 18 Price Elasticity of Demand ◼ What is the elasticity of season ski passes? ⚫ Originally ◆Price = $400 ◆Quantity demanded = 10,000 passes/year ⚫ New ◆Price = $380 ◆Quantity demanded = 12,000 passes/year, then :Elastic 5 20 % Change i nPrice % Change i nQuantity = Exercises 4.1
Price Elasticity of Demand a Determinants of Price Elasticity of Demand o Substitution Possibilities ● Budget Share ●Time Chapter 4: Elasticity Slide 19
MB MC Chapter 4: Elasticity Slide 19 Price Elasticity of Demand ◼ Determinants of Price Elasticity of Demand ⚫ Substitution Possibilities ⚫ Budget Share ⚫ Time
Price Elasticity Estimates for selected Products Good or service Price elasticity Green peas 2.80 Restaurant meals 1.63 Automobiles 1.35 Electricity 1.20 Beer 1.19 Movies 0.87 Air travel (foreign) 0.77 Shoes 0.70 Coffee 0.25 Theater, opera 0.18 Chapter 4: Elasticity Slide 20
MB MC Chapter 4: Elasticity Slide 20 Price Elasticity Estimates for Selected Products Good or service Price elasticity Green peas 2.80 Restaurant meals 1.63 Automobiles 1.35 Electricity 1.20 Beer 1.19 Movies 0.87 Air travel (foreign) 0.77 Shoes 0.70 Coffee 0.25 Theater, opera 0.18