TD response 2 Price Elasticity of Demand week 2
DeVry
TD response 2 Price Elasticity of Demand week 2
This is a good example of elastic demand and I would like to add to your discussion. Another example or simple way to discuss elastic demand verses inelastic is actually to consider a rubber band. The more elastic a rubber band is the more it moves; hence, elastic demand is more likely to be affected by circumstances. For instance, demand for many extravagant or luxury items are elastic for non-wealthy people because if they lose their jobs, the economy goes into recession and they tend to stop buying the luxury items. Alternatively, inelastic demand is a lot less dependent on outside factors since even if they lose their job, the economy fails and there happens to be a massive earthquake or hurricane Sandy; people will still need to buy bread and water which are because necessities of life in order to live. A good way to determine whether a product is elastic or inelastic is by utilizing the total revenue test, which is a means for determining whether demand is elastic or inelastic. According to McConnell (2012), “Total revenue and the price elasticity of demand are related. In fact, the easiest way to infer whether demand is elastic or inelastic is to employ the total-revenue test. Here is the test: Note what happens to total revenue when price changes. If total revenue changes in the opposite direction from price, demand is elastic. If total revenue changes in the same direction as price, demand is inelastic. If total revenue does not change when price changes, demand is unit-elastic” (p. 78). Please also review the website below that discusses elasticity and the economic terms discussed in this post.
http://www.sparknotes.com/economics/micro/elasticity/section1.rhtml
References
McConnell, C. R., Bruce, S. L., & Flynn, S. M. (2012). Economics (19th ed.). Retrieved from http://online.vitalsource.com/#/books/0077587766/pages/50192729