hey i am back so let's take it right where we left off so we're going to talk about inelastic demand versus elastic demand all right so let me write this up real quick just so we can reference it so remember the formula for the price elasticity of demand is the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good okay excuse me so what does it mean if the big number sorry the top number is bigger the percentage change in quantity is larger than the percent change in price so it means that for a relatively small change you have a larger change in the quantity or in other words like when the price changes the reaction of the consumer the change in the consumer's behavior is larger than the change in price itself so the percentage change in quantity is larger than percentage change in price the change in the consumer's decision is larger than percentage change in price itself we call that elastic demand remember elastic the ability to stretch so consumers are able to stretch or change their decision okay mathematically so that's economically mathematically that means that the elasticity that you calculate will in magnitude be greater than one what do i mean by in magnitude i mean if you know the negative sign okay it's gonna be greater than one because you'll have a big number divided by a small number that always creates a number that's larger than one and then we're gonna put a negative in front of it okay so in that case we're gonna say the demand for that good is elastic so in our apple cinnamon shiro's example we would have said apples and materials has elastic demand over the relevant range of prices now what about when the opposite is true if the change in quantity is less than the change in price then we're saying the reaction of consumers the change in their behavior is smaller than the actual price change it's small relative to the change in price itself so this we're going to call inelastic demand inelastic demand are harder to stretch we can call it inelastic because this means the consumer's behavior is not reacting terribly strongly to that change in price when we do this mathematically we're going to see a number that in magnitude is smaller than one so it's gonna start with a decimal be point four something point three something you know what i mean okay so that's inelastic demand okay and of course if it's possible for the change in quantity to be greater than the percent change in price and it's possible the percentage change in quantity less than the percentage change in price we better include the the what happens if they're the same and you know we don't see these examples very often but it's possible that the percentage change in quantity is equal to the percent change in price and we call that unitary demand excuse me or unitary elastic demand and in that case the last system will be equal to one in negative in magnitude so it'll be equal to negative one okay so i want to go through an example that has does two different problems um because i want you to see that it's not as simple as some goods like apples and materials would have elastic demand and some goods like gasoline would have inelastic demand it actually can change within the good itself depending on some information or depending on the demand curve itself so let me show you an example so this is a demand curve that i took from the book um of i don't remember if this actually says in the book it's been so long um that it's uh for sneakers um i made a slight error here and i sure i should change the slides but i'm just gonna change it here um i'm gonna i'm just gonna uh turn these around i'm gonna go from point b to point a instead from point a to point b so the price of seventy dollars the quantity demanded is twenty eight hundred sneakers at a price of sixty dollars the quantity demanded rises to 3 000. okay just because that's the way i did the math on the next slide i did it the price falling instead of the price increasing and so i want to make oh ni and i realized it didn't match this so um if you want some more practice on calculating elasticities which is always a good idea hit pause answer this question then hit play and see the answer because i'm not going to go through it slowly like i did the last two examples i'm kind of just going to go to a slide that has all the math figured out for us because that's not what i want to focus on here we focused that on the previous videos okay so we have our p1 that's 70 dollars we have our p2 that's 60 we have our q1 that's 2800 sneakers we have our q2 that's 3 000 sneakers okay and so here it is like as it just said so 3000 minus 2800 the midpoint between 3200 is 2900 so this is 200 divided by 2900 6.9 percent 60 minus 70 that's negative 10 divided by the midpoint negative 154 percent you take six point nine divided by negative fifteen point four here's another typo the equal sign is missing um is equal to negative 0.45 that is our price elasticity demand so we'd say in this case the demand for these sneakers is inelastic the price changed the quantity of change and we saw inelastic demand i want you to notice this was a drop in price of ten dollars and the result there's 200 more sneakers demanded okay and we ended up with inelastic demand okay now let's see another place on this demand curve so now we're going to be in the same the same demand curve that's just the same straight line now we're going to do it up here the price is going to fall from 130 to 120 and as a result the quantity demanded sneakers is going from 1600 1800 hey that sounds the same the price goes down by 10 and 200 more sneakers are demanded but what you see is we have a totally different result now the percentage change in quantity is 11.7 percent 200 divided by 1700 and the percent change in price is eight percent a hundred uh negative ten dollars divided by 125 dollars we do that math and we get the equal signs gone here too we do that math and we get a price elasticity demand of negative 1.47 so now sneakers have elastic demand so how does that happen well even though in both cases the price is ten dollar changes prices changes ten dollars and the quantity changes twenty dollar or two hundred sneakers sorry the percentage change is what matters and ten dollars is a bigger change when you're talking about a pair of sneakers that cost is going from 60 to 70 it's a bigger change relative to those prices than a 10 change when you're talking about going from 120 to 130 and i'm sure that you've experienced this at some point in your life like we're talking about going out to buy i don't know skittles that should be two bucks if someone's trying to charge you twelve dollars you're gonna be like that's ridiculous this skills should not cost 12 but if someone is going to sell you an iphone instead of selling to you for 700 they're trying to sell it to you for 710 probably not going to react as strongly because 10 doesn't seem like such a big deal compared to 700 as it does seem to do so that's a more extreme example but that's what's going on here this price change is stronger when we're moving from 60 to 70 than it is from 120 to 130. okay and so what ends up happening is when you have a linear demand curve a demand curve that's a straight line that's actually always going to be the case okay you're always going to have a portion of the demand curve where the demand is inelastic and a portion of the demand curve where the demand is elastic that will always happen so in this case this was the intel the elastic portion and this was the inelastic portion and that will always be the case so that's why you might notice in in a in questions and you might notice in the way i talk is always talk about price demand being elastic over the relative range of prices meaning we're really only concerned with elasticity over this price change we're talking about over the change between 120 and 130 is the demand elastic or not okay now that doesn't mean we can't compare two goods and say one good is more elastic than the other we still can do that because we're talking about the elasticity over relevant price ranges over prices that are realistic it's very possible this could be the demand curve for that pair of sneakers but this pair of sneakers would never sell for more than 120 this could be a pair of sneakers that's going to normally sell for 60 or 70 so what's going on the upper end that this demand curve could be irrelevant okay so i know i said a lot there but the thing i want you to focus on here the takeaway from this part was that demand can be inelastic it can be elastic and it can change within a product itself okay all right so um we're going to stop here and we're going to move on to the polar cases of elasticity in our next recording