Determinants of Elasticity

Abstract

This activity is designed to have students develop the concepts that affect own-price elasticity for products. Elasticity is a measure of how responsive consumers' are to prices changes. Inelastic products are goods that consumers are unresponsive to price changes, elastic goods are ones where consumers are highly reactive to price change. The four determinants are the portion of the consumer's income, the number of substitutes for the product, and whether the product is a luxury or a necessity. The activity introduces different types of products and explores how a stylized consumer reacts to price changes. Students are required consider how the determinants influence product choice. In addition, students are introduced to the concept of % change and how economists calculate it.

Level: Undergraduate
Setting: Classroom
Activity Type: Learning Cycle
Discipline: Economics
Course: Microeconomics
Keywords: own-price elasticity, price changes, consumer, income, substitute, luxury, necessity, percent change