Warm Up Questions:

• If you were a business owner and you wanted to increase your income which would you choose - increase your prices or have a sale?

• Is it possible to make more money in both scenarios? Explain.

Elasticity of Demand

Chapter 4 Section 3

Demand Elasticity

• The extent to which a change in price causes a change in the quantity demanded.– Elastic• When a change in price causes a relatively large change

in the quantity demanded– Inelastic• When a change in price causes a relatively small change

in the quantity demanded

Determinants of Demand Elasticity

• Can a purchase be delayed?– Yes would indicate elastic.

• Are adequate substitutes available?– Yes would indicate elastic.

• Does the purchase use a large portion of income?– Yes would indicate elastic.

• Two of three will determine elasticity.

Elastic or Inelastic?• Table Salt

– Can a purchase be delayed?

– Are adequate substitutes available?

– Does the purchase use a large portion of income?

– Elastic • Insulin

– Can a purchase be delayed?

– Are adequate substitutes available?

– Does the purchase use a large portion of income?

– Inelastic

• Gasoline from Kwik Trip– Can a purchase be delayed?

– Are adequate substitutes available?

– Does the purchase use a large portion of income?

– Elastic

Chapter 4 Section 3 Review• Page 104• #3 – 11• DUE TOMORROW• If you finish please work on your

Chapter 4 Study Guide.