Lecture 10 - Announcements MT1 is 2 weeks from today (after...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Announcements MT1 is 2 weeks from today (after we do ch. 6) Register your iClickers TODAY!!!!! 1 of 29
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 of 29 THE DETERMINANTS OF DEMAND ELASTICITY Perhaps the most obvious factor affecting demand elasticity is the availability of substitutes. More substitutes means that the consumer has more options and can switch more easily if price changes. The number of substitutes depends on how you define the product you are considering. EXAMPLE: TOILET PAPER If we talk about toilet paper, the individual brands will have high elasticity (you can easily switch brands if the price of one brand rises). However the demand for all toilet paper will be less elastic. (If the price of all TP goes up, you are not going to stop buying it!). 1. AVAILABILITY OF SUBSTITUTES
Background image of page 2
3 of 29 THE DETERMINANTS OF DEMAND ELASTICITY When an item represents a relatively small part of our total budget, we tend to pay little attention to its price. So quantity demanded is not very responsive to price changes (i.e. demand is inelastic). EXAMPLE: SALT. First, people don’t buy salt very often. And, salt is so cheap that even if price doubled, they probably wouldn’t notice 2. THE IMPORTANCE OF BEING UNIMPORTANT
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
THE DETERMINANTS OF DEMAND ELASTICITY 3. THE TIME DIMENSION The elasticity of demand in the short run may be very different from the elasticity of demand in the long run. In the longer run, demand is likely to become more elastic, or responsive, simply because households make adjustments over time and producers develop substitute goods. 4 of 29
Background image of page 4
Selected price elasticities of D (absolute values) 5 Product Short run Long run Cigarettes (among adults) Electricity (residential) Air travel Medical care and hospitalization Gasoline Milk Fish (cod) Wine Movies Natural gas (residential) Automobiles Chevrolets - 0.1 0.1 0.3 0.4 0.4 0.5 0.7 0.9 1.4 1.9 - 0.4 1.9 2.4 0.9 1.5 - - 1.2 3.7 2.1 2.2 4.0
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
KNOW Remember, “elasticity” is a general term that talks about the relationship between two variables. Using elasticities, we can look at other relationships – not just that between price and quantity demanded. 6 of 29
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/21/2009 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

Page1 / 25

Lecture 10 - Announcements MT1 is 2 weeks from today (after...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online