Elasticity of Demand & Supply
The degree of "elasticity" refers to the amount of change produced in the demand or supply for a product as a result in the change in that product's price.
Demand example: we would say the demand for gasoline is "inelastic" because it's a necessity consumers will not give up quickly as a response to an increase in the price per gallon.
Supply example: we would say that the supply of land is "inelastic" because it's a fixed amount of space and no matter what the price change for real estate the change in supply will be moderate at best.
Activity
To better illustrate this point make a demand graph based on the following information:
Demand for Packs of Cigarettes vs. Tubs of Butter
Cigarettes
| Price | Quantity Demanded |
| $1.00 | 175 |
| $1.25 | 170 |
| $1.50 | 165 |
| $1.75 | 160 |
| $2.00 | 155 |
Butter
| Price | Quantity Demanded |
| $1.00 | 175 |
| $1.25 | 150 |
| $1.50 | 130 |
| $1.75 | 80 |
| $2.00 | 40 |
Questions:
1. Explain why the cigarettes are "inelastic" in demand compared to the butter.
2. If you were a city council person and wanted to find a way to raise tax revenues how could today's lesson give you ideas?