Elastic vs. Inelastic Demand & Supply: Understanding Market Impact and Examples

📚 Quick Study Guide

• 📏 Elastic Demand: Quantity demanded changes significantly with a price change. Think luxury goods!
• 🧱 Inelastic Demand: Quantity demanded changes slightly or not at all with a price change. Think necessities like medicine.
• 📈 Elastic Supply: Quantity supplied changes significantly with a price change.
• 📉 Inelastic Supply: Quantity supplied changes slightly or not at all with a price change.
• ➗ Price Elasticity of Demand (PED): $PED = \frac{\% \, Change \, in \, Quantity \, Demanded}{\% \, Change \, in \, Price}$
• ➗ Price Elasticity of Supply (PES): $PES = \frac{\% \, Change \, in \, Quantity \, Supplied}{\% \, Change \, in \, Price}$
• 💯 If |PED| > 1: Elastic. If |PED| < 1: Inelastic. If |PED| = 1: Unit Elastic.

🧪 Practice Quiz

1. Which of the following goods is MOST likely to have inelastic demand?
   1. Designer Handbags
   2. Gasoline
   3. Restaurant Meals
   4. Movie Tickets
2. If the price of a product increases by 10% and the quantity demanded decreases by 5%, the demand is:
   1. Elastic
   2. Inelastic
   3. Unit Elastic
   4. Perfectly Elastic
3. Which factor would MOST likely cause the supply of avocados to be inelastic in the short term?
   1. Low production costs
   2. Long growth period
   3. Availability of substitutes
   4. High storage capacity
4. A perfectly inelastic supply curve is represented graphically as:
   1. A horizontal line
   2. A vertical line
   3. An upward-sloping line
   4. A downward-sloping line
5. If a firm lowers its price and total revenue increases, the demand for its product is:
   1. Inelastic
   2. Elastic
   3. Unit Elastic
   4. Perfectly Inelastic
6. Which of the following scenarios describes elastic supply?
   1. A large increase in price leads to a small increase in quantity supplied.
   2. A small increase in price leads to a large increase in quantity supplied.
   3. A large decrease in price leads to a large increase in quantity supplied.
   4. Price changes have no effect on the quantity supplied.
7. Suppose the price elasticity of demand for apples is -1.5. If the price of apples increases by 5%, what will be the approximate percentage change in the quantity demanded?
   1. Increase by 7.5%
   2. Decrease by 3.3%
   3. Decrease by 7.5%
   4. Increase by 3.3%