Concept of Demand Elasticity
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Inelastic
Demand is something like gas for your car
- when the price goes down,
some people will buy more, but not a lot more
- when the price of gas
goes up, there is a small number of people that buy less, but, essentially,
people still have to have gas to travel by car, so they will continue buying
- so we say the demand is "insensitive" to price
- another way of saying
the demand is insensitive is to say the demand does not respond to price
inelastic demand is for
things that do not have close substitutes
- the demand curve is very
steep because it represents the fact that no matter whether the price is
high or low, you will still have almost the same number of people buying
Monopolies often breed situations
of inelastic demand cause they sell a product at a price you have to pay
cause there is no competition |
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Elastic Demand is
something like a vacation
- when the price goes up,
less people will want to buy - cause the demand is "sensitive" to the price
- some of the reasons why
a product is "elastic" is because there are alternatives.
- a good example of a product
with elastic demand is gold
- when gold is relatively
cheap, people will buy lots of gold jewellery, when the price of gold goes
up, people switch to silver jewellery
- the demand curve is shallow
because this represents the fact that when the price changes, the number
of people that will buy changes a lot |
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