Monday, April 6

• Welcome back! I hope your weekend was great!

• Bellringer:–What is the difference between a change in

demand and a change in quantity demanded?

Demand

• Today: Review headline activity on p. 58

Elasticity of demand

• There are some goods we will always find money to buy, even if the price goes up drastically– Examples:

• Elasticity helps us measure how consumers respond to price changes for different products

Elasticity of demand

• Elasticity of demand: a measure of how consumers react to a change in price– Elastic: describes demand that is very sensitive to

a change in price• As prices rise, demand falls, revenues decrease

– Inelastic: describes demand that is not very sensitive to a change in price• As prices rise, demand ceteris paribus,

revenues increase (inelastic)

Calculating elasticity

• Total revenue: the total amount of money a firm receives by selling goods or services (price X quantity = total revenue)

Total revenue

• Elasticity of demand determines the effect of a price change on total revenues:

Elastic demand

Total revenue

rises

As price is lowered …

Total revenue

falls

As price is raised …

Total revenue

• Elasticity of demand determines the effect of a price change on total revenues:

Inelastic demand

Total revenue

falls

As price is lowered …

Total revenue

rises

As price is raised …

Calculating elasticity

Percentage change in quantity demanded

Percentage change in priceElasticity =

Percentage change =

(Original number – New number)

Original numberX 100

• If the result of your elasticity formula is …

• What if you got a negative number? Don’t worry.

Calculating elasticity

More than 1.0 Less than 1.0

Elastic Inelastic

Calculating elasticity

• Calculate the elasticity of demand in the following examples. Then tell if, in each case, demand is elastic or inelastic.

Calculating elasticity

• When the price of a deluxe car wash rises from $10 to $11, the number of daily customers falls from 60 to 48.

Elasticity = Percentage change in quantity demanded

Percentage change in price

Percentage change =Original number – New number

Original number X 100

Calculating elasticity

• Calculate the elasticity of demand in the following examples. Then tell if, in each case, demand is elastic or inelastic. – A dentist with 80 patients cuts his fee for a

cleaning from $80 to $54 and attracts two new patients.

Factors of elasticity

• Substitutes– What other things can be used instead? How readily

available are those things? How much do they cost?

• Importance• Does the consumer consider the item to be a

necessity or a luxury? • Time– It takes time for consumers to react to price changes

and find substitutes

Chapter 5: Supply

• Supply: the amount of goods available• Law of supply: tendency of suppliers to offer

more of a good at a higher price

Supply and the supply curve

• Supply curve: a graph of the quantity supplied of a good at different prices

• Market supply curve: a graph of the quantity supplied of a good by all suppliers at different prices

Supply and the supply curve

• Supply schedule: a chart that lists how much of a good a supplier will offer at different prices

• Variable: a factor that can change• Market supply schedule: a chart that lists how

much of a good all suppliers will offer at different prices

Practice

• Please complete the demand and supply sheets (front and back) for practice.