A. Elasticity of Demand: a measure of how consumers react to a change in price.
B. Elastic v. Inelastic
Elastic -
Demand that is very sensitive to a change in price.
A product is elastic when it's greater than 1.
Product is not a necessity and there are available substitutes.
Inelastic -
Demand that is not very sensitive to a change in price.
A product is elastic when it is less than 1.
People will buy it no matter what.
C. How to calculate : Price Elasticity of Demand (PED)
Step 1: Calculate the Quantity
Subtract the old quantity from the new quantity and divide it by the old quantity.
Step 2 : Price
Subtract the old price from the new price and divide it by the old price.
Step 3 : PED
Take the percent change in quantity demanded and divide it by the percent change of the price. So the answer of step 1 divided by the answer of step 2.
Supply
Supply is the quantities that producers/sellers are willing and able to produce at various prices.
Supply down = left, supply up = right
The Law of Supply: There is a direct relationship between price and quantity supplied. Change in price causes a "change in quantity supplied".
What causes a "change in supply"?
1. A change in expectations
2. Change in weather
3. Change in the number of suppliers
4. Change in costs of production
5. Change in taxes or subsidies
6. Change in technology
What would be an example of change in expectation ?
ReplyDeleteAn example would be; if you want a pair of jeans that cost 60 dollars, but you know there is going to be a sale in a couple of days, you will wait until the jeans go on sale to buy them.
Delete