3.3 Elasticity in Demand Vocabulary and Questions PDF

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CLASS WORK ASSIGNMENT DONE IN CLASS FOR ECONOMICS CHAPTER 2.5 READING NOTES PLUS QUESTIONS THAT GO WITH IT INTERACTIVE WORKSHEET...

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Lesson 3.3 Elasticity of Demand

Key Terms elasticity of demand- a measure of how consumers react to a change in price. inelastic- describes demand that is not very sensitive to price changes. elastic- describes demand that is very sensitive to a change in price. unitary elastic- demand whose elasticity is exactly equal to 1. total revenue- the total amount of money a firm receives by selling goods or services.

Academic Vocabulary Dramatically: in a way or to an extent that draws attention Drastically: in an extreme or exaggerated way Precise: exact Relatively: in relation or comparison to something else

Lesson Objectives 1.

Explain how to calculate elasticity of demand.

2.

Identify factors that affect elasticity of demand.

3.

Explain how firms use elasticity and revenue to make decisions.

Elasticity Defined: Text Interactive Reading Notepad • Lesson 3.3 Copyright © by Savvas Learning Company LLC. All Rights Reserved.

1.

Use Visual Information: Use Figure 3.4 to answer the following: If the cost of gasoline increases from $3.00 per gallon to $4.00 per gallon and the quantity demanded decreases from 12 gallons to 10 gallons, would the demand be elastic or inelastic? inelastic

2.

Determine Central Ideas: Read the section “Price Range.” Why do you think people are more willing to pay 50 percent more for a product that increases in price from 75 cents to $1.00 than a product that increases from $5.00 to $7.50, also an increase of 50 percent? the amount that is increased by was only 25 cents, the 50% increase could be from a product that was only 50 cents, and the product could also have inelastic demand having no decrease in the $2.50 of the last situation.

3.

Vocabulary: Use Context Clues: Look at the word unitary. Based on the definition of the term unitary elastic and the context, what do you think this term means? Based on the definition of the term unitary elastic and the context it means when the demand equals exactly zero.

Interactive Reading Notepad • Lesson 3.3 Copyright © by Savvas Learning Company LLC. All Rights Reserved.

Factors Affecting Elasticity: Text 4.

Categorize: If a person is willing to give up her yearly two-week cruise in the Caribbean due to a price increase, her action illustrates which factor affecting elasticity? Explain your answer. "luxury versus necessity" factor, because a cruise is a luxury and therefore demand for it may be considered highly elastic.

5.

Categorize: Which factor affecting elasticity explains why a person may continue to purchase gasoline even though the price rises sharply? gasoline being a necessity and there being no alternative resource in transportation.

6.

Analyze Sequence: Read the section “Change Over Time,” and explain the process by which time affects elasticity. When price changes, individual consumers may consider their demand for a product. At first, they may not be able to respond because —for example, because there are no substitutes. But over time, the consumer will make adjustments, and the demand will become more elastic.

How Elasticity Affects Revenue: Text Interactive Reading Notepad • Lesson 3.3 Copyright © by Savvas Learning Company LLC. All Rights Reserved.

7.

Identify Cause and Effect: Complete the graphic organizer to illustrate what happens to revenues when the elasticity of demand and change in price are considered.

Demand is inelastic.

Demand is elastic.

8.

Price rises.

Price rises.

The price and total revenue move in the same direction. An increase in the prices raises total revenue and a decrease in price reduces total revenue.

Raising the price of each unit sold by 20% will decrease the quantity sold by a larger percentage, say 50%. The quantity sold will drop enough to actual reduce the firm's total.

Use Visual Information: Look at Figure 3.7. What would total revenue be if the price went to $7 a slice but demand fell to just 25 slices? Since 7 times 25 equals 175, the total revenue would be $175 per day.

9.

Determine Central Ideas: Read “How Elasticity Affects Pricing Policies.” Explain why a business owner needs to understand elasticity of demand for his or her good or service when considering price changes. in considering a producer's price change knowing the elasticity of their product means knowing how much their product is valued.

Interactive Reading Notepad • Lesson 3.3 Copyright © by Savvas Learning Company LLC. All Rights Reserved.

Interactive Reading Notepad • Lesson 3.3 Copyright © by Savvas Learning Company LLC. All Rights Reserved....