econ 01-mar-10 objective: to understand the concept of elasticity and in-elastic notes on elasticity...
DESCRIPTION
ELASTICITY the relative change in an economic variable, e.g. demand, that occurs in reaction to changes in other variables, e.g. price or advertising inputTRANSCRIPT
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ECON01-MAR-10
• OBJECTIVE: To understand the concept of Elasticity and In-Elastic
• Notes on Elasticity• Video on Elasticity• Complete Worksheet on Elasticity
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ELASTICITY
NOTES
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ELASTICITY• the relative change in an economic
variable, e.g. demand, that occurs in reaction to changes in other variables, e.g. price or advertising input
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INELASTIC• if the quantity responses to a change in
price are relatively small compared to change in price.
• Very few substitutes
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Substitutes
• Competing products that can be used in place of one another; products related in such a way that an increase in price of one increases the demand for the other.
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EXAMPLES—cost $4-$5 Pack
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Personal financial impact
• The cost of a pack of cigarettes averages around $4.50 to $5, including taxes, depending on where you live. Using the lower number, a pack-a-day smoker burns through about $31.50 per week, or $1,638 per year. That's a fat house payment or a nice vacation with the family. A 40-year-old who quits smoking and puts the savings into a 401(k) earning 9% a year would have nearly $250,000 by age 70.
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Gasoline—How much would you Pay?
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ELECTRICITY
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INSULIN---How much would you pay if you are sick?
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ELASTIC GOODS• If the quantity responses are relatively
large, demand is described as elastic.
• Many substitutes
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EXAMPLES OF ELASTIC GOODS
PORK CHOPS-----
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CARS
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VACATIONS
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DEMAND-----• is typically more elastic in the long run
than in the short run.