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Elasticity Economics


In today’s lecture I want to talk about Elasticity. My name is David Longstreet.

  • How sensitive are consumers to change in price, elasticity measures that.
  • How much less will they buy if prices are raised?
  • How much more will they buy more if prices are lowered?
  • Revenue is equal to price x quantity physical a price. What happens to revenue if prices are changed? When prices go up; quantity goes down. We know this from the law demand. If prices go up; in quantity goes down just a little bit. Then we say that total revenue will rise. This is called inelastic demand. We have some consumers, is our consumers. Prices go up; we are going to lose consumers. But we do not lose very minute. Now, the other hand, prices go up a little bit, in quantity display plummets, quantity demand plummets. Total revenue will fall, we called that Elastic Demand. Give me have some consumers. Small change in price we, lose a lot of consumers; Elastic demand.

    When Prices Change:

  • How much does quantity change
  • How elastic is demand
  • What Impacts Demand:

  • Availability substitutes
  • Percent to Consumers Budget
  • Time Period of Adjustment
  • Let’s say, you wake up in the morning and the price of gas is stand up. What do you do? If Price is rise then how much less gasoline will you purchase.
    1. You have to get to work.
    2. You have to get to class. You do not have many choices.

    You can decrease the quantity easily. The demand for gasoline is inelastic especially in the short run.
    Inelastic Demand:

  • Means it is prices are Rigid, consumption is rigid.
  • Not very flexible
  • And you have Limited Choices.
  • Elastic:

  • Means flexibility
  • You can easy change to another product service.
  • You have a lot of choices
  • Inelastic Price and Revenue:

  • Inelastic demand. There was a positive relationship between price and total revenue.
  • An increase in price increases total revenue.
  • A decrease in price decreases total revenue.

    Elastic Price and Revenue:

  • Elastic Demand. There is a negative relationship between price and total revenue.
  • Increase in price decreases total revenue.
  • Decrease in price increases total revenue.
  • If prices go down, and revenue goes up, we called it elastic demand. If prices go down and revenue goes down, at inelastic, if prices go down and revenue remains flatter and change we called it unitary demand. Now prices go up and revenue goes down we say that is Elastic. If prices go up and revenue goes up it is Inelastic. If prices go up there is no change in revenue, as unitary elasticity.
    Let’s look at a couple of products. First sample salt is joining in the elastic, this not very good substitute. Coffee in my opinion is in inelastic, just not very good substitutes. But a particular brand of coffee can be elastic, that means have a lot of choices. When I go to store actually buy a particular product. That is elasticity in a nutshell, and I am going to provide some equations in a lecture. I will be posting in a couple days. Again my name is David Longstreet and thanks for watching.

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