EGT1 Task 309
Elasticity: The real stretch play.
We have all heard the phrase, “Stretch your dollar”, but have you ever stopped to consider what all goes on behind the scenes in order to make this stretch occur? What rules of economics and finance play into making your hard-earned dollar stretch to its maximum value? While the topic of stretching your money spans across all areas of business, finance, and economics, I will focus on the fundamental principle of economic stretch; elasticity.
Elasticity in economics is very similar to elasticity in every other discipline. It’s all about the stretch. How much pressure can that elastic waistband take before it breaks? How much give is in that rubber band? How much will increasing the price of that product affect its demand? All similar questions related to elasticity.
A few terms I need to define as they relate specifically to economics include; the elasticity of demand, cross-point elasticity, and income elasticity. The elasticity of demand refers to the degree to which demand for a particular good or service varies with price of that good or service. Think lower prices higher volume, lower volume, higher prices. Take for instance the all-powerful smartphone. If a smart-phone producing company has the latest and greatest smartphone and releases fewer phones than are demanded, the phones price could go up drastically, if, however, the smartphone producing company releases too many smartphones then the price of the phones could drop due to the station of the market. Finding the perfect balance of volume and price is what will help keep that dollar stretching.
The next term is cross-point elasticity. Cross-point elasticity is the proportionate change in the demand for a particular good or service in response to a change in price of another good or service. There are two main parties of cross-point elasticity, the positive party with substitute goods and services, and the negative party with complement goods and
We have all heard the phrase, “Stretch your dollar”, but have you ever stopped to consider what all goes on behind the scenes in order to make this stretch occur? What rules of economics and finance play into making your hard-earned dollar stretch to its maximum value? While the topic of stretching your money spans across all areas of business, finance, and economics, I will focus on the fundamental principle of economic stretch; elasticity.
Elasticity in economics is very similar to elasticity in every other discipline. It’s all about the stretch. How much pressure can that elastic waistband take before it breaks? How much give is in that rubber band? How much will increasing the price of that product affect its demand? All similar questions related to elasticity.
A few terms I need to define as they relate specifically to economics include; the elasticity of demand, cross-point elasticity, and income elasticity. The elasticity of demand refers to the degree to which demand for a particular good or service varies with price of that good or service. Think lower prices higher volume, lower volume, higher prices. Take for instance the all-powerful smartphone. If a smart-phone producing company has the latest and greatest smartphone and releases fewer phones than are demanded, the phones price could go up drastically, if, however, the smartphone producing company releases too many smartphones then the price of the phones could drop due to the station of the market. Finding the perfect balance of volume and price is what will help keep that dollar stretching.
The next term is cross-point elasticity. Cross-point elasticity is the proportionate change in the demand for a particular good or service in response to a change in price of another good or service. There are two main parties of cross-point elasticity, the positive party with substitute goods and services, and the negative party with complement goods and