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Elasticity

 

According to the classical economic theory, a consumer good is elastic if the reduction in the price of the good A from PA1 to PA2 implies an increase in the volume of sale from VA1 towards VA2 such as VA1*PA1 > VA2*PA2. A good B is inelastic if the reduction in its price implies a change in its volume of sale such as VB1*PB1 < VB2*PB2.

 

In summary,

A is an elastic good if PA1 > PA2 = > VA1 < VA2 with VA1*PA1 < VA2*PA2
B is an inelastic good if PB1 > PB2 = > VB1 < VB2 with VB1*PB1 > VB2*PB2

It will be noted that VA is the volume of the sales of a product A, VA*PA is the sale of this company for product A. The effect of elasticity on the company is defined by:

An elastic good profits to the producers because if this cost reduction is transmitted to the price, total sale increase. Inelastic goods have usually saturated the market. A reduction of its price will not increase the sales because the population have no more need of it. The agricultural produce: milk, meat are an example of inelastic goods in the modern economy.

Elastic goods are products which are new to the market and has an increase potential. A reduction of the production cost transmitted to the price, would make A accessible to a larger part of the population. The goods of type A are attractive goods for the consumer but dissuasive by their price. In 1990, one can classify among these goods: travels, high-technological products...

 

 

 

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Copyright 2001

Author: Hector Archytas