**What will we look at today ?**

**Elasticity**

Elastic and Inelastic goods

Price Elasticity of Demand

Elastic and Inelastic goods

Price Elasticity of Demand

So what do we know already?

Law of Demand

Price of good rises > quantity demanded falls

Price of good falls > quantity demanded rises

Elasticity

A measure of

responsiveness

of the

quantity demanded

of a good to a change in some

variable.

P

rice

E

lasticity of

D

emand

Measures the proportional or

% change in the

quantity demanded

for a good caused by the proportional or % change in the

price

of the good itself.

Degree of Elasticity

Varies products

Elastic

Lets put this all into action !

**Price Elasticity of Demand**

**Ms Cummins**

However this does not tell us the EXTENT of the increase or decrease in quantity demanded >

elasticity

.

Price of a good

Price of another good

Consumer's income

Proportional or % change in

quantity demanded

of a good is

GREATER

than the proportional or % change in

price

of good itself.

Unitary Elastic

Proportional or % change in

quantity demanded

is

equal

to the proportional or % change in the

price

of that good

Example : 30% decrease in price = 30% increase in quantity

When measuring the elasticity of a good we use the formula

After we do our calculations we need to decided on the

degree of elasticity

If elasticity is :

Greater than 1 =

elastic

Between 0 and 1 =

inelastic

Equals 1 =

unitary

elastic

Examples:

+1.5

-1.2

-0.4

+0.6

-1

+1

Elastic

Inelastic

Unitary

Lets do out an example

Use the sheets distributed

3 min to complete

Swap for correction

Summary

****Important point

Look at number and sign SEPARATELY

Number = degree of elasticity

Sign -->

negative

= normal good

-->

positive

= giffen good

Perfectly Elastic

Any increase in price = quantity falls to zero

Perfectly Inelastic

Proportional or % change in

price of a good

causes

no change

in quantity demanded

Examples ???

Unitary elastic

Proportional or % change in

quantity demanded

of a good is

LESS

than the proporational or % change in the

price

of that good

Inelastic

∆ = change

Q1 = Original Quantity

Q2 = New Quantity

P1 = Original Price

P2 = New Price

Solution

Q1 = 50 P1 = €1.50

Q2 = 90 P2 = €0.50

∆Q = +40 ∆P = -€0.50

+40 1.50 + 1

-0.50 50 + 90

= -1.4

Demand = Elastic as PED is > 1

Negative sign = normal good

Thank You !

***Pg 28 Log Tables

Luxury good > price increase will

discourage

consumers

Necessities >insensitive to change as they are

needed

Luxury good

If the price goes

up

= demand goes

down

Addictive items

Necessities