Chapter 4: Section 3: Elasticity of Demand

Let's review: DEMAND

• The desire for a product and the ability to pay for it is called demand.

A measure of how responsive consumers are to price changes.

Demand is elastic if....

quantity demanded changes significantly as price changes.

Demand is inelastic if....

quantity demanded changes little as price changes.

$100 to $400

$200 to $500

Factor 1: Substitute Goods or Services

• Insulin for diabetics is inelastic because no substitute exists for it. If the price goes up substantially, diabetics will still buy it.

• Meat products can be elastic because if the price of beef goes up, people will buy less and they can substitute it with chicken.

Factor 2: Proportion of Income

• YOU EARN $50 per week for your chores. If your hobby is baking and the cost of eggs goes up substantially, then you'll probably bake less or stop until egg prices go back down unless your income increases.