Concept: Elasticity of Demand

What does elasticity refer to in terms of demand?

Elasticity refers to how sensitive demand is to price changes.

What is elastic demand?

Elastic demand is when demand is very responsive to price changes.

Give examples of elastic goods.

Luxury goods, vacations, concert tickets, and video games.

What is inelastic demand?

Inelastic demand is when demand does not change much with price fluctuations.

Give examples of inelastic goods.

Gasoline, medicine, electricity, water, and toilet paper.

What is the role of government intervention in markets?

Governments intervene to protect consumers from extreme price exploitation, especially with inelastic goods.

What is a price ceiling?

A price ceiling prevents prices from rising above a certain level and can create shortages.

What are some examples of price ceilings?

Rent control and limits on drug prices.

What is a price floor?

A price floor prevents prices from falling below a certain level and can create surpluses.

What is an example of a price floor?

Minimum wage.

What happens when government price controls are implemented?

They can fix one problem but create another, such as shortages or surpluses.

What is the equilibrium price?

The equilibrium price is where how much suppliers are willing to invest meets how much people are willing to pay.

What is the key takeaway about elastic goods?

Elastic goods are those where people are price-sensitive, and demand is flexible.

What is the key takeaway about inelastic goods?

Inelastic goods are those that people will buy regardless of price changes.