ECON-2000 Lecture Notes - Lecture 9: Demand Curve, Twix, Oatmeal

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4 Feb 2017
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Econ Lecture 9: Elasticity
2/3/17
Elastiity: the resposiveess of uyers ad sellers to hages i arket alulatios. What’s the
size of the change? How sensitive are people to price?
Demand is elastic if:
o Quantity demanded changes significantly as the result of a price change. Elastic =
sensitive/responsive
Demand is inelastic if:
o Quantity demanded does not change significantly as the result of a price change.
Inelastic = insensitive/unresponsive
o People are still going to buy the same-ish amount no matter the price change
What determines price elasticity of demand?
1. Existence of substitutes
a. Goods with many substitutes are more elastic. If the price goes up even a little,
you can easily switch to something else that is similar
i. Ex: breakfast cereals you can get other cereals, or oatmeal or whatever
ii. Ex: Apples you can get other types, or get other fruit instead
iii. Anything with comparable brands
b. Goods with no/few substitutes are more inelastic.
i. Not many comparable goods
ii. Ex: Broadway tickets, autographs, gas
2. Share of the budget spent on the good
a. Demand is more elastic for things that make up a large portion of your budget
b. Demand is more inelastic for inexpensive items
c. Ex: a 20% sale on a car is a better deal than a 20% sale on a Twix bar
3. Time and adjustment process
a. Over time, demand for goods becomes more elastic
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