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...
Copyright 2001
Author: Hector Archytas