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$16
$15
Price per Pizza
$14
$13 Demand for Pizza
$12
$11
$10
0
0
10
20
30
40
50
60
Number Purchased per Week
Inelastic Demand
• Demand for a good that consumers will
continue to buy despite a price increase is
INELASTIC
OR
• Even if price changes a lot, demand
changes very little
Example of Inelastic Demand
• The price of soap goes up a lot, the
demand stays almost the same.
Inelastic Demand for Soap
Curve is STEEP
$3.50
Price per Bar of Soap
$3.00
$2.50
$2.00
Soap
$1.50
$1.00
$0.50
$0.00
0 10 20 30 40 50
Quantity Demanded (In
Thousands)
Factors Affecting Elasticity
• Several different factors can affect the
elasticity of demand for a certain good.
1. Availability of Substitutes
If there are few substitutes for a good, the
demand will not likely decrease as price
increases (inelastic), the opposite (lots of
substitutes) is also usually true (elastic)
Ex. Gasoline has no substitutes- inelastic
McDonalds has many (Burger King, etc)-
elastic
Factors Affecting Elasticity (Cont.)
2. Relative Importance
Another factor determining elasticity of demand
is how much of your budget you spend on the
good.
Ex. Mortgage payment must be paid (inelastic)
Entertainment (movies, etc.) are elastic
Factors Affecting Elasticity (Cont.)
3. Necessities vs. Luxuries
Whether a person considers a good to be a
necessity or luxury has a great impact on the
good’s elasticity of demand for that person.
Ex. Food (inelastic)
Jewelry (elastic)
Factors Affecting Elasticity (Cont.)
4. Change over Time
Demand sometimes becomes more elastic over
time because people can eventually find
substitutes.
Ex. Blockbuster used to be the only place to rent
videos (inelastic)
Netflix, Video on Demand, Pay Per View, are
substitutes for Blockbuster (elastic)
Change in Demand
• A demand curve is only accurate as long
as there are no changes other than price
that could affect a consumer’s decision
• When factors other than price (non-price
factors) affect the demand curve, the
entire curve shifts to the left or to the right
Non-Price Factors that effect
Demand
• These factors will cause the demand curve
to shift to the left (less quantity demanded)
or to the right (more quantity demanded)
Change in Demand: Recently, Farley High School changed
boys hockey from a varsity sport to an intramural sport. As
a result, they needed to buy fewer hockey pucks. The
decrease in demand is shown by a shifting demand curve.
$1.75
$1.50
$1.25
Original
$1.00 Demand
$0.75 New Demand
$0.50
$0.25
$0.00
10 20 30 40 50 60 70
1. Change in Income
• As people earn more money, the demand
for luxury goods will increase
• As people earn less money, the demand
for luxury goods will decrease
• Ex. Gasoline
How does a boycott affect
demand?
• If an item is being boycotted, there is little
to no demand for the item.