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Unformatted text preview: Inelastic market 3. percent of income spent on good- the higher the percentage of your income devoted to the product the more sensitive you are to a change in price.- gum: raise price 20% from $1 to $1.20 Cars: raise price 20% $3000 -- $3600 wow bigger increase? Not percentage wise, but it is in terms of percent income Morton salt vs generic 30 cents lb ---- 42 cents lb 40% diff in price- habit- not a big percentage increase of income 4. Time to Adjust A Way to remember S - Substitutes H - Habit I - Income T - Time The more specific you make the market the more elastic the demand Gasoline -- Shell gas Highly inelastic (no substitutes) - slightly inelastic (substitutes) Lawsuit against tobacco companies- settlement from tobacco companies- got billions from the companies- demand for cigarettes is inelastic. - companies took that fine and passed it to the consumer- stock didnt go down...
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- Spring '08