Elasticity is a concept in microeconomics that reflects "the degree to which a demand or supply curve varies among products" (Investopedia, 2013). Thus, the degree to which demand or supply of a good changes with a change in the price. This dynamic can be calculated using the following formula:
Elasticity = (% change in quantity / % change in price)
In general, a good is characterized as elastic if the change in quantity is greater than the change in price, in other words if E > 1. If the change in quantity is lesser than the change in price, demand for the good is considered to be inelastic. If the demand changes exactly as the price changes, in order words if E = 1, then the good is said to be perfectly elastic. Perfect elasticity is uncommon, and is observed mostly in theoretical examples (Moffatt, 2013). There is also reverse elasticity. This situation arises when elasticity is inverse, in order words if E < 0. This situation can occur with luxury goods. The reason for this is that the utility in buying a luxury good is not just based on the intrinsic value of the good, but on the prestige associated with the good. If the good is too affordable, the prestige value is minimal. If the price of the good increases, then the prestige increases. Since much of the utility of the good derives from the prestige, the demand for the good is likely to be reverse elastic...
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Microeconomics is one of those subjects that I knew little about before I started. In the course of studying it, I came to appreciate the value it has, not only for describing elements of how the world works, but for the way I could apply it to my daily life. By the end of the course, I could see the decisions that I was making in microeconomic terms; this actually
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