Examples of elastic goods are coffee, airline tickets and stocks. Examples of inelastic goods are water, electricity, and telephone service. The elasticity of a good is the sensitivity of its demand to changes in its price.
If an increase or decrease in price has little or no effect on the demand for the good, then the good is considered to be highly inelastic. Likewise, if an increase or decrease in price has a dramatic effect on the demand for the good, then the good is considered to be highly elastic. A couple of factors that determine the elasticity of goods include the existence of substitutes and disposable income. If a good has a close substitute, consumers choose to purchase the substitute if the good rises in price. Assuming that a consumer's income level remains the same, if the price of a good rises then so does its opportunity cost, which means that purchasing the same amount of the good as before comes at a higher expense. In situations in which prices are rising and incomes are constant, consumers choose not to purchase luxury goods, such as airline tickets and stocks. Goods such as water and electricity are inelastic because they have an innate biological or sociological demand.Learn More
The concepts of elastic and inelastic demand are used in economics to describe change processes, and the differences between the terms are defined by the amount of change occurring within a given system. Areas of economic study related to supply and demand utilize these concepts.Full Answer >
GDP stands for gross domestic product, which is the market value of finished goods and services manufactured in a country within a set time frame, typically one year. This includes consumer spending, government spending, industry investments and a country’s exports minus its imports.Full Answer >
Monopolies have a negative effect on the entire economy by making it harder for consumers to purchase goods, a trend that leads to lower production in the system. High prices do not affect only the consumer, they end up hurting the monopoly itself. Even systems with more than one competitor can be monopolistic if there are only a few. Competition benefits every human component in the economy.Full Answer >
Profit maximization is the course of action a business takes to make the highest return from the goods or services they offer. One major way businesses achieve profit maximization is through reduction of production costs.Full Answer >