Elasticity :: Economics, Price

IntroductionElasticity is one of the most important theories in economics and it is a measure of reactivity (Baker, 2006)i. There are mainly two types of elasticity, the elasticity of demand which includes hurt elasticity of demand, income elasticity of demand, and cross elasticity of demand as well as elasticity of supply (McConnell, Brue, & Flynn, 2009)ii. The degree to which a demand or supply curve reacts to a change in value is the curves elasticity (Lingham, 2009)iii. Elasticity varies among products because round products may be more essential to the consumer. ConsumerPrice elasticity plays an important role in the lives of consumers. The price elasticity of demand is the sensitivity of the demand for a product when its price changes (McConnell, Brue, & Flynn, 2009)iv. Cafes give care Panera Bread refuses payments from customers and politely asked them instead to take what you need, and leave your fair share (Strom & Gay, 2010)v, resulting in more people getting goods lik e food at a fair price that they are willing to pay. Based on the income elasticity of demand, consumers can get a better and better life as they will cloud things with better quality as their income rises. People will go to Italiannies for pizza and not to Pizza Hut as Italiannies offers a better, tastier, healthier and wider variety of choices, even when it is more expensive. With cross elasticity of demand, consumers can get the same quality product at a cheaper price as the rivalry between substitute goods will result in price reduction or improved quality. Consumers get to travel by MAS Airlines at a cheaper price as the rivalry between MAS and other airline companies has caused its price reduction (Gunasegaran, 2011)vi. Consumers with a low budget can also buy what they need. Consumers can get more value from a package offer when buying complementary goods as they go together, for example McDonalds McValue Lunch which comprises of a burger, fries, and soft drink, all for onl y RM5.95 onwards (My Food Fetish, 2009)vii. With this, consumers can get convenience when buying certain products. BusinessElasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead spirited in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.