Shooter Grrl Posted December 16, 2005 Share Posted December 16, 2005 I'm having a tough time grasping the concept of "elasticity"! Can anyone shed some light on it for me? Link to comment Share on other sites More sharing options...
rtr Posted December 16, 2005 Share Posted December 16, 2005 I have a BA in economics, I'll see if I can help. Elasticity basically measures how the change in demand for a product is affected by other factors (such as price and income). So if the price of a product goes up usually the demand goes down and visa versa. So if the price of a brand new STI open gun went down to $500 tomorrow, the number of people looking to buy those (ie demand) would go way up. Elasticity is a way to measure that kind of change. See: http://economics.about.com/cs/micfrohelp/a...eelasticity.htm http://www.tutor2u.net/economics/content/t..._elasticity.htm Link to comment Share on other sites More sharing options...
davidball Posted December 16, 2005 Share Posted December 16, 2005 I'll add my BA in economics two cents worth: If the number of people who buy the STI at the lower price goes WAY up, demand is said to be relatively elastic (big change in quantity demanded with a change in price). If only a few more people buy the STI at $500 less, demand is said to be relatively inelastic (small change in quantity demanded with a change in price). Link to comment Share on other sites More sharing options...
Shooter Grrl Posted December 16, 2005 Author Share Posted December 16, 2005 What else besides price determines elasticity? How do you measure elasticity? Is an apple elastic or inelastic? Link to comment Share on other sites More sharing options...
John Heiter Posted December 16, 2005 Share Posted December 16, 2005 (edited) relatively inelastic. Basically to measure it you look at percentages. If the price of an apple is .50 cents and you eat one per day, how much will the price have to rise or fall to change your consumptions habits. If the price rose or fell 50% to .25cents or .75 cents, would you still eat an apple a day? Probably so. If the price of gas fell 50%, would you drive further or be more likely to drive a big block, probably so. Your consumption of gas would change, your apple consumption would not. Edited December 16, 2005 by John Heiter Link to comment Share on other sites More sharing options...
Shooter Grrl Posted December 16, 2005 Author Share Posted December 16, 2005 relatively inelastic. Even if you're an applesauce maker? Link to comment Share on other sites More sharing options...
John Heiter Posted December 16, 2005 Share Posted December 16, 2005 Well, if I made apple sauce and the price of apples dropped by 50%, my price for bottles, lids, lables, etc. stay the same so I'm only able to drop my apple sauce price by some smaller fraction like 10%. I don't think (I'm no sauce expert) that a 10% reduction in apple sauce prices is really going to alter demand much. Link to comment Share on other sites More sharing options...
Flexmoney Posted December 16, 2005 Share Posted December 16, 2005 elasticity ... I think everybody has been talking about "price elasticity" and how it effects demand. That is probably how you will learn it in class. But, my take on elasticity (by itself) is that it is a measure of how much one thing changes...when some other variable changes. It is a measure of correlation. Or, how closely things are tied together. How much a change in one thing effect something else. You probably won't want to think of it on an individual basis (how many aples YOU will buy), but on a larger scale (how many apples will Americans buy). So...with "price elasticity" compared to demand... You are comparing how much a change in price will change demand. If price goes up 20%, does demand go down 50%? Link to comment Share on other sites More sharing options...
Flexmoney Posted December 16, 2005 Share Posted December 16, 2005 I just clicked on the second link that rtr provided. It explaines "income elasticity" in relation to demand. Good stuff. Link to comment Share on other sites More sharing options...
davidball Posted December 16, 2005 Share Posted December 16, 2005 (edited) relatively inelastic. Basically to measure it you look at percentages. If the price of an apple is .50 cents and you eat one per day, how much will the price have to rise or fall to change your consumptions habits. If the price rose or fell 50% to .25cents or .75 cents, would you still eat an apple a day? Probably so. If the price of gas fell 50%, would you drive further or be more likely to drive a big block, probably so. Your consumption of gas would change, your apple consumption would not. I disagree with John on the apples and the gasoline. There are lots of substitutes for apples. If the price of apples goes up significantly, people will readily switch to, say, pears. Gasoline, on the other hand, is relatively inelastic. If the price goes up, yes, people will buy and use less - but not that much less. There are few substitutes (riding a bike in Indiana in the winter is not an option), and it is a necessity (substitute products and how necessary a product is are factors which determine how elastic a product's demand is). As Flex points out, most of this discussion has been about price elasticity. His definition about the general definition of elasticity is also spot on. Elasticity is usually measured by comparing the percentage change in price to the percentage change in quantity demanded due to that change in price - similar to the slope formula in mathematics. Here is a simplified example I use to teach high school students: QL - QS --------- QL ------------ PL - PS --------- PL Where QL is the large quantity, QS is the small quantity, PL is the large price and PS is the small price. Let's say the price of a product goes from $4 to $6 and the quantity that is purchased goes from 10 to 5. The formula looks like this: 10 - 5 ------- 10 ______ 6 - 4 ------- 6 which calculates down to 1.5. If the result is greater than 1, demand is relatively elastic, as in this example. If the demand is between 0 and 1, demand is relatively inelastic. If the result is exactly one, there is unit elasticity (double the price and half as much will be demanded). Edited December 16, 2005 by davidball Link to comment Share on other sites More sharing options...
3quartertime Posted December 16, 2005 Share Posted December 16, 2005 Ok so what your saying is that if I buy lots and lots of apples instead of just one and wash them down with, I don't know pick a drink, say beer. Eat and drink till it's all gone, then I'll need to sew some elasitic in the waist of my pants. Man that was easy. Where were you guys when I was in college!!! Link to comment Share on other sites More sharing options...
rtr Posted December 16, 2005 Share Posted December 16, 2005 Might help to think about your own consumption habits. There are some items that you are probably price sensitive about, when the price changes even a little you tend to buy more or less of it, on these items you are relatively price elastic. There are probably other items that you buy the same amount of even if the price changes, on these items you are relatively price inelastic. You can think about the same thing for the whole population, items like gasoline are relatively price inelastic, total consumption doesn't change significantly regardless of the price. Other goods people are more price sensitive to and will change their consumption of them significantly based on price, often these are "luxury" type goods like steak, wine, etc. One of the biggest things affecting the elasticity of demand for a product is how many alternatives there are to that product. You can't put anything other than gas in you're car, but there are many alternatives to steak. Link to comment Share on other sites More sharing options...
davidball Posted December 17, 2005 Share Posted December 17, 2005 Ok so what your saying is that if I buy lots and lots of apples instead of just one and wash them down with, I don't know pick a drink, say beer. Eat and drink till it's all gone, then I'll need to sew some elasitic in the waist of my pants. Man that was easy. Where were you guys when I was in college!!! In class. Link to comment Share on other sites More sharing options...
Flexmoney Posted December 17, 2005 Share Posted December 17, 2005 When I was taking this stuff, Yahoo whole website was all of one page big. (I had to walk to school in the snow, too.) Link to comment Share on other sites More sharing options...
ima45dv8 Posted December 17, 2005 Share Posted December 17, 2005 (edited) (I had to walk to school in the snow, too.) Uphill. Both ways. Edited December 17, 2005 by ima45dv8 Link to comment Share on other sites More sharing options...
shred Posted December 17, 2005 Share Posted December 17, 2005 When I was taking this stuff, Yahoo whole website was all of one page big. (I had to walk to school in the snow, too.) [montypython] You had Yahoo?? Luxury! In my day all we had was Gopher and we liked it! [/montypython] Link to comment Share on other sites More sharing options...
3quartertime Posted December 17, 2005 Share Posted December 17, 2005 In class. You guys talked about eating and drinkin' lots of beer in econ class? Don't tell me there were hot chics there too!!! Link to comment Share on other sites More sharing options...
Kingman Posted December 18, 2005 Share Posted December 18, 2005 Most of the ppl in my graduating class for econ were chicks. Link to comment Share on other sites More sharing options...
Loves2Shoot Posted December 18, 2005 Share Posted December 18, 2005 All this talk of apples and gas, maybe someone should use brass and bullets to make it easier for shooters to understand For a while I used bullet cost to manage my budget, ie. 1 burger and fries = 62.5 bullets. Link to comment Share on other sites More sharing options...
j1b Posted December 18, 2005 Share Posted December 18, 2005 Kat, Did you get what you needed out of this thread? If not, let us know. I'd love to participate if we understand better the context elasticity is falling in. J Link to comment Share on other sites More sharing options...
Flexmoney Posted December 19, 2005 Share Posted December 19, 2005 James, The cost of beer at the local bar can be a pretty good indicator of the general economy and unemployment rate. Link to comment Share on other sites More sharing options...
Sam Posted December 19, 2005 Share Posted December 19, 2005 http://www.mises.org/ SG, if you only want to pass the class, simply recite the professors mantra on economics back to him. There is about a 90% chance that he is a Keynesian and will give you hell if he discovers that you really understand economics. But, if you truly want to understand money, click on the link above and keep you opinions to yourself in class. Basically, it all boils down to how we define money. Some people believe that money is what ever the gvt says that it is. Other people believe that it is a store place for hard earned wealth. Just be aware that these are the two basic schools of economic thought. PS, GO GOLD!!!! Link to comment Share on other sites More sharing options...
Shooter Grrl Posted December 19, 2005 Author Share Posted December 19, 2005 Kat,Did you get what you needed out of this thread? If not, let us know. I'd love to participate if we understand better the context elasticity is falling in. J Thanks Jack - the question asked of us was to define elasticity, including the other determinants besides price and then to categorize these items as elastic or inelastic: Apples Buttler Gasoline Cigarettes Marlboro Cigarettes Link to comment Share on other sites More sharing options...
davidball Posted December 19, 2005 Share Posted December 19, 2005 My opinion: Apples - elastic (has substitutes) Buttler - elastic (has substitutes) Gasoline - inelastic (few substitutes, necessity) Cigarettes - inelastic (few substitutes, ADDICTION) Marlboro Cigarettes - elastic (has substitues - other brands) Link to comment Share on other sites More sharing options...
rtr Posted December 19, 2005 Share Posted December 19, 2005 I'm not sure how many substitutues there are for a butler But seriously I agree with david. Link to comment Share on other sites More sharing options...
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