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Help me understand Elasticity

Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
edited March 27 in Work & Study
I was taught at school that if the price of a product rises and demand stays the same then that product is Elastic. In uni I just can't get my head around the questions abpout elasticity that they are asking with the equation and the definitions.

Please, someone with a knowledge of university level economics (I'm in 1st year) please describe it to me so i don't go in next week and totally fuck up me exam!
Post edited by JustV on

Comments

  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Is there nothing about it in your textbook?

    I'm not superbly familiar with the English words but this is one of the things I was doing as a part of my microeconomics course last semester. :)

    It's easiest to get your head around it if you understand the extremes, or at least I felt that way. Taking an example from my final exam, there was one question in which we had to draw the elasticity and explain the supply of paintings by Rembrandt. First is to identify that he is a famous and very dead painter so what is the elasticity likely to be for the supply? Perfectly inelastic because no matter how many want his paintings, no more will be produced!
    Now if it's copies on the other hand, the supply will be pretty elastic and based on the price people are willing to pay for them.

    Same with demand. On my exam a bypass surgery was made as an example. If the government paid for it completely, what would the demand be like? Well, even if the government wants to give you a free bypass surgery what are the chances of you going 'just for the hell of it'? Very slim! So the demand is pretty inelastic although it will always be slightly as some that might not afford to will now go have it. It's the same even if the government isn't paying. If you need a bypass surgery to continue living, you're going to want to go, right?
    Plastic surgery, however, is more of a luxury commodity where demand is very elastic. If the price is high very few will go. But now if they went on 'sale', quite a few people would jump at the chance to get a cheap breast implant! Even people that normally wouldn't consider it. Cheap and beautifying, eh? Sign me up! ;) (okay, not really :p)

    If you fully understand HOW and WHY these apply, you should more easily be able to apply them to other situations where it's less obvious. If you understand the logic behind it you should be able to apply it elsewhere.

    Now, the three basic things to remember when you do the elasticity calculations are the following:
    Inelastic: price doesn't change demand much: less than 1
    Elastic: price has a lot of effect on demand: higher than 1
    Unit Elastic: price changes as much as demand: equal to 1

    Then I recommend practicing using the equations and understanding what numbers go where and what to use when. If you understand what elasticity tells you and the difference between supply and demand elasticity and know the equations you should be able to do well! :)

    Good luck on the exam! I was doing micro last semester and now I'm in a course with "useful economic equations" which pretty much just is a math class. ahhh, how fun. :p I bet I'll be seeing the elasticity equations again soon.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    So if X is £1 and 100 people buy it and the price is raised to £10 and 100 people still buy it it is inelastic? as opposed to Y being £1 and 100 people buy it and the price is raised to £10 and only 50 people buy it making it elastic?
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