Concepts
- Elasticity (Responsiveness)
- Inelastic Demand (Paper Clip)
- Relatively Steep Demand Curve
- Unit Elastic Demand (Bendy Drinking Straw)
- 45 Degree Demand Curve
- Elastic Demand (Rubber Band)
- Relatively Flat Demand Curve
- Elasticity Formula
- Elasticity vs. Slope
- Midpoint Method to Calculate % Changes
- Determinants of Elasticity
- # of Substitutes
- % of Income a Purchase Takes Up
- Necessity vs. Luxury
- Time to Delay Purchase
- Ranges of Elasticity Along a Linear Demand Curve
- Elastic
- Unit Elastic
- Inelastic
- Elasticity, Price and Total Revenue
- Trigger = Change in Price
- Response = Change in Quantity Demanded
- Quantity Effect/Price Effect Dominates
- Perfectly Inelastic Demand
- Perfectly Elastic Demand
Overview
Elasticity is a measure of responsiveness. When something is more responsive, like a rubber band, we say it is elastic. When something is less responsive, like a paper clip, we say it is inelastic. When something is exactly responsive, we say it is unit elastic. In the measure of elasticity there is a dependent variable (what we have control over), and an independent variable (what we respond to). The Price Elasticity of Demand measures how responsive consumers are to a change in price in terms of how much of a product they buy. As a result, this is it’s formula: % change Qd/% change P. We use % changes when calculating elasticity because it eliminates the units of measurement and allows us to accurately compare many different things. We also learn about the things that determine how responsive we are to a change in price. They are called the determinants of elasticity and range from the # of substitutes that exist to the time we have to delay our purchase. Next, we discuss the extremes of elasticity: perfectly elastic and perfectly inelastic demand. We learn that these are hypothetical situations that can be asked about in several different ways on the AP Exam. Finally, we learn about how businesses can use this information about elasticity to determine the proper pricing strategy to increase their total revenue.
Materials
Lecture
Elasticity Lecture Video
Price Elasticity of Demand Lecture Video
Price Elasticity of Demand 1 Video
Price Elasticity of Demand 2 Video
Determinants of the Price Elasticity of Demand Video
Total Revenue Test of Price Elasticity of Demand 1 Video
Total Revenue Test of Price Elasticity of Demand 2 Video
Quiz
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