Lesson 3-9:
​Price Elasticity & Marketing

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LESSON SUMMARY
Price elasticity measures how demand for a product or service reacts to price changes, with two main types: price elasticity of demand (PED) and price elasticity of supply (PES). Generally, demand declines when prices rise and increases when prices drop, though the extent of these changes varies by product. Essential goods, like bread, tend to have low elasticity, meaning demand remains stable even with price increases, while non-essential goods, such as spa treatments, exhibit high elasticity, where demand drops significantly with price hikes. Availability of substitutes, consumer income changes, and perceived urgency also influence price elasticity. Understanding these factors helps businesses develop effective pricing strategies based on consumer behavior and market dynamics.

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Lesson Objectives & Instructional Outcomes

​Lesson Objectives: Define and explain the concept of price elasticity of demand (PED) and price elasticity of supply (PES). Distinguish between elastic and inelastic demand/supply using real-life examples. Analyze how the necessity of a product affects its elasticity. Examine the relationship between price changes and consumer behavior. Evaluate the role of substitute products in determining elasticity. Instructional Outcomes: Students will be able to correctly identify and define PED and PES on an assessment. Students will classify products as elastic or inelastic and justify their choices. Students will analyze case studies involving price changes and predict consumer reactions. Students will explain how luxury and necessity impact elasticity in both written and verbal formats. Students will complete a graphic organizer comparing the elasticity of various products using given data.

Aim & Essential Questions

Aim: How do changes in price influence consumer and supplier behavior in different market conditions? Essential Questions: What is price elasticity, and why does it matter in business and economics? How does the essential or luxury nature of a product affect its elasticity? What factors influence whether demand or supply is elastic or inelastic? How do consumers respond differently to price changes in necessities vs. luxuries? How can understanding elasticity help businesses make better pricing decisions? ​

Vocabulary

Price Elasticity of Demand (PED) – The responsiveness of quantity demanded to a change in price. Price Elasticity of Supply (PES) – The responsiveness of quantity supplied to a change in price. Elastic Demand – When a small price change causes a significant change in demand. Inelastic Demand – When demand changes very little despite price changes. Substitute Products – Alternatives consumers may use if the price of a similar product rises. Necessity Goods – Essential items that have inelastic demand (e.g., bread, milk). Luxury Goods – Non-essential items with elastic demand (e.g., spa treatments). Consumer Behavior – How individuals make decisions to spend their available resources. Disposable Income – Money remaining after taxes and essential expenses. Revenue – Income generated from normal business operations.

Higher Level Questions

Questions For Instructional Time: ​ What does it mean when demand is elastic vs. inelastic? How do necessities differ from luxuries in terms of elasticity? Why does the availability of substitutes increase elasticity? How does a price increase affect a product with elastic demand vs. one with inelastic demand? Can the same product be elastic in one situation and inelastic in another? Why or why not? How does consumer income influence elasticity? What pricing strategies should companies use for products with inelastic demand? What role does urgency play in determining elasticity? ​

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Do Now: Examine The Struggle Of Your Generation

Checklist Of What You Need To Do Today To Get 100%

DO NOW:
1.) Participate in Do Now. (Actively participate, you are facing the discussion, not turned away from the discussion, phones are always away at all times in class)

Independent Practice:
2.) Read or listen to video and article (below)
3.) Complete Quizzes:

Lesson 3-9 Quiz A (On Schoology)

4.) Higher Level Question: Complete Higher Level Question

What Is Price Elasticity?

Price elasticity refers to the responsiveness of demand for a product or service to changes in its price. It measures how much the quantity demanded of a product changes when its price increases or decreases. If demand significantly changes due to a small price adjustment, the product is considered to have elastic demand. Conversely, if demand hardly changes despite price fluctuations, demand is inelastic. Understanding price elasticity helps businesses make informed decisions about pricing strategies and how these decisions impact overall revenue.

These Goods Have High Price Elasticity

These Goods Have Low Price Elasticity

Here are 50 examples of goods with high price elasticity (meaning demand significantly changes in response to price changes):
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1. Movie theater tickets
2. Restaurant meals
3. Luxury handbags
4. Designer clothing
5. Airline tickets (leisure travel)
6. Concert tickets
7. Premium coffee drinks (e.g., Starbucks lattes)
8. Organic produce
9. Brand-name cereals
10. Non-essential electronics (e.g., tablets, smartwatches)
11. Soft drinks
12. Snacks and candy
13. Fast food
14. Vacation packages
15. Luxury watches
16. Gym memberships
17. Spa services
18. Cosmetic treatments (e.g., Botox)
19. Jewelry (non-essential)
20. Video games
21. Streaming subscription services
22. Home decor items
23. Furniture
24. Recreational sporting goods (e.g., golf clubs, skis)
25. Theme park admissions
26. Books and magazines
27. Specialty gourmet foods
28. Brand-name shoes
29. Alcoholic beverages (premium or imported)
30. Recreational vehicles (e.g., boats, motorcycles)
31. Hotel stays
32. Professional photography services
33. Hair salon services
34. Organic skincare products
35. Online dating subscription services
36. Luxury cars
37. High-end televisions
38. Cruises
39. Pet grooming services
40. Perfumes and colognes
41. Art supplies
42. Non-essential kitchen appliances (e.g., espresso machines)
43. Decorative lighting fixtures
44. Premium bottled water
45. High-end chocolates
46. Fitness classes (e.g., yoga, Pilates)
47. Craft beer
48. Musical instruments
49. Ski resort lift tickets
50. Non-essential clothing accessories (e.g., scarves, sunglasses)

These goods typically have readily available substitutes or are considered non-essential luxuries, leading consumers to significantly reduce their purchases when prices rise.

Here are 50 examples of goods with low price elasticity (inelastic demand), meaning their quantity demanded doesn't significantly change even if prices fluctuate:
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1. Insulin (essential medication)
2. Electricity
3. Gasoline (short-term)
4. Salt
5. Tap water (residential use)
6. Prescription medications (essential)
7. Emergency healthcare services
8. Basic groceries (bread, milk, eggs)
9. Diapers
10. Toilet paper
11. Toothpaste
12. Soap and basic hygiene products
13. Public transportation (in areas without alternatives)
14. Natural gas (heating)
15. Cigarettes (due to addiction)
16. Baby formula
17. Eyeglasses (corrective lenses)
18. Basic cell phone plans
19. School textbooks
20. Coffee (for habitual consumers)
21. Rent (housing in general)
22. Basic clothing essentials
23. Funeral services
24. Basic cooking oil
25. Rice (staple in many countries)
26. Feminine hygiene products
27. Legal fees for essential services
28. Emergency plumbing repairs
29. Car repair services (essential repairs)
30. Pet food
31. Education (primary education especially)
32. Prescription eyewear
33. Basic insurance coverage (health insurance, car insurance)
34. Property taxes
35. Garbage collection services
36. Internet services (basic broadband)
37. Prescription asthma inhalers
38. Heating oil (cold climates)
39. Emergency veterinary services
40. Home heating and cooling systems (HVAC essentials)
41. Bottled water (in areas lacking safe tap water)
42. Inspections (car, home safety)
43. Bread (basic staple)
44. Milk (basic staple)
45. Short-term parking in crowded cities
46. Basic phone chargers
47. Non-elective surgeries
48. Fire extinguishers and safety devices
49. Basic pest control services
50. Essential cleaning supplies (detergents, disinfectants)

​These goods have few close substitutes, are essential for everyday living, or have an addictive component, making consumers less responsive to price changes

Based On Necessity, Products Have Various Levels Of Price Elasticity 

The essential nature of a product significantly influences its price elasticity, affecting how consumers respond to price changes. Here's how this relationship works:

Necessity vs. Luxury:

• Products considered essential necessities, such as basic food items, medications, or utilities, typically have inelastic demand. This means consumers will continue purchasing these items even if prices rise significantly because they're vital to daily life. Price changes thus have minimal effects on consumption patterns.
• Conversely, luxury items, such as expensive watches, vacations, or high-end electronics, tend to have elastic demand. When prices increase, consumers are more likely to reduce purchases or stop buying altogether because these products are not essential for daily life.

Availability of Substitutes:

• Essential goods often lack adequate substitutes (e.g., insulin or gasoline), which further reduces price elasticity. Consumers can't easily switch products if prices increase, making demand highly inelastic.
• Non-essential or luxury products typically have many available substitutes. If the price of one product increases, consumers easily switch to similar, lower-priced alternatives, resulting in elastic demand.

Consumer Income Impact:

• The less sensitive a consumer's consumption is to changes in their income, the less elastic a product’s demand will be. Essential items, such as basic groceries, have stable demand despite fluctuations in consumer income, making their elasticity relatively low.
• In contrast, non-essential products are more sensitive to changes in consumer income. During economic downturns, demand for luxury goods significantly declines, indicating higher elasticity.

​Perceived Urgency and Importance:

• Products needed immediately or for emergencies (e.g., medications or repairs) have lower elasticity because consumers prioritize immediate necessity over price concerns.
• Products perceived as optional, such as entertainment or fashion accessories, have higher elasticity. Consumers readily defer or eliminate these expenditures when prices rise.

The essential nature of a product strongly affects its price elasticity. Essential goods, necessary for everyday living, typically exhibit low elasticity, while non-essential and luxury items display high elasticity, responding significantly to price fluctuations. Understanding these differences enables companies to better tailor pricing strategies and effectively predict consumer reactions.

Lesson 3-9 Quiz A

Lesson 3-9 Quiz A

Higher Level Question

Task: Answer the prompt below in a well written one paragraph response.

Prompt: Can the same product be elastic in one situation and inelastic in another? Why or why not?

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Rubric

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