Elastic vs. Inelastic Goods: Everyday Examples You'll Recognize

📚 Quick Study Guide

🔍 Elasticity measures how much the quantity demanded or supplied of a good changes when its price changes.
• 🍎 Elastic goods have a demand that is very sensitive to price changes. If the price goes up, people buy a lot less of it, and vice versa.
• 🧱 Inelastic goods have a demand that is not very sensitive to price changes. People will buy roughly the same amount even if the price changes.
• ➕ Formula for Price Elasticity of Demand (PED): $PED = \frac{\% \ Change \ in \ Quantity \ Demanded}{\% \ Change \ in \ Price}$
• ⛽ Goods that are necessities (like gasoline) tend to be inelastic.
• 🍦 Goods that have many substitutes (like ice cream flavors) tend to be elastic.
• ⏳ Elasticity can change over time. For example, demand for gasoline might be more elastic in the long run as people switch to more fuel-efficient cars.

🧪 Practice Quiz

1. Which of the following goods is MOST likely to be price inelastic?
   1. A. Designer handbags
   2. B. Gasoline
   3. C. Movie tickets
   4. D. Restaurant meals


2. If the price of apples increases by 10% and the quantity demanded decreases by 20%, what is the price elasticity of demand for apples?
   1. A. -0.5
   2. B. -2
   3. C. 2
   4. D. 0.5


3. Which of the following factors tends to make demand for a good MORE elastic?
   1. A. The good is a necessity
   2. B. The good has few substitutes
   3. C. The good represents a small portion of the consumer's budget
   4. D. The good has many substitutes


4. A perfectly inelastic demand curve is:
   1. A. Horizontal
   2. B. Vertical
   3. C. Upward sloping
   4. D. Downward sloping


5. Which of the following is an example of a good with relatively elastic demand?
   1. A. Prescription medication
   2. B. Salt
   3. C. Luxury cars
   4. D. Water


6. If a seller raises the price of an inelastic good, total revenue will likely:
   1. A. Increase
   2. B. Decrease
   3. C. Stay the same
   4. D. Fluctuate randomly


7. Which scenario indicates that a product has inelastic demand?
   1. A. A large price increase leads to a small decrease in quantity demanded.
   2. B. A small price increase leads to a large decrease in quantity demanded.
   3. C. A large price decrease leads to a small increase in quantity demanded.
   4. D. Any change in price leads to no change in quantity demanded