Lesson Plan - Elasticity



I. What is elasticity?

- rubber band elasticity
- the concept - what causes a rubber band to be more or less elastic?
- the independent variable (acts upon)
- the dependent variable (is acted upon)
- which is which for rubber band elasticity?
- calculating rubber band elasticity (i.e., the mathematical formula)
- the concept of elasticity generalized
- ALL elasticities are calculated in exactly the same manner. They all have:
- an independent variable.
- a dependent variable.
- the same equation relating these two variables.
- elasticity coefficient =
(% change in dependent variable / % change in independent variable)

II. Price Elasticity of Demand (n)

- what are the two variables?
- price and quantity demanded
- what are we trying to measure? How responsive is demand to changes in price.
- which is the dependent variable and which the independent variable?
- P = independent (acts upon)
- Qd = dependent (is acted upon)
- calculating an elasticity coefficient - a numerical example
- the formula and the use of averages.
- interpreting the coefficient
- the sign of the coefficient
- the size of the coefficient
- the slope of the D curve is not the same as its elasticity
- when is D inelastic (perfectly inelastic)?
- when is D elastic (perfectly elastic)?
- unitary elasticity
- elasticity and total revenue.
- define total revenue
- if D is elastic => TR increases as P decreases (and TR decreases as P increases)
- if D is inelastic => TR decreases as P decreases (and TR increases as P increases)
- the relationship graphically
- what causes a D curve to be more "elastic" (i.e., what causes D to be more responsive to changes in P?)

III. Income Elasticity of Demand (ny)

- what are the two variables?
- income and quantity demanded
- what are we trying to measure? How responsive is demand to changes in the consumer's income.
- which is the dependent variable and which the independent variable?
- income (Y) = independent (acts upon)
- Qd = dependent (is acted upon)
- calculating an elasticity coefficient - a numerical example
- interpreting the coefficient
- the sign of the coefficient
- the size of the coefficient

IV. Cross Elasticity of Demand (nab)

- what are the two variables?
- the P of a related good and quantity demanded
- what are we trying to measure? How responsive is demand to changes in the price of a related good.
- which is the dependent variable and which the independent variable?
- P of the related good = independent (acts upon)
- Qd = dependent (is acted upon)
- calculating an elasticity coefficient - a numerical example
- interpreting the coefficient
- the sign of the coefficient
- the size of the coefficient

V. Price Elasticity of Supply (ns)

- what are the two variables?
- income and quantity supplied
- what are we trying to measure? How responsive is supply to changes in the price
- which is the dependent variable and which the independent variable?
- P = independent (acts upon)
- Qs = dependent (is acted upon)
- calculating an elasticity coefficient - a numerical example
- interpreting the coefficient
- the sign of the coefficient
- the size of the coefficient