Inelastic & Elastic Deman Curves

Discussion in 'Economy' started by moeshiznit, Feb 13, 2010.

  1. moeshiznit
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    moeshiznit Rookie

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    Why is it that a profit-maximizing businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve?

    What do ya'll think?:confused:
     
  2. eagleseven
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    eagleseven Quod Erat Demonstrandum

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    The more elastic the curve, the more sensitive the market is to price.

    If the market is elastic, a change in prices will dramatically change demand (think groceries). If the market is inelastic, a change in prices will barely change demand (think automobiles).

    This is why a businessman will often offer a discount on eggs, but rarely on BMWs.
     
  3. The Rabbi
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    The Rabbi Diamond Member

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    What Eagleseven said.
     
  4. ☭proletarian☭
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    ☭proletarian☭ Guest

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    ?

    Clarification request.
     
  5. ☭proletarian☭
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    ☭proletarian☭ Guest

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    Explain these curves, what the represent, and what is meant by their flexibility.

    :confused:
     
  6. eagleseven
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    eagleseven Quod Erat Demonstrandum

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    Neoclassical Microeconomics:

    The demand curve represents the demand for a given good at a range of prices in an economy, and elasticity refers to the rate of change of this curve.


    In math-speak, the demand curve is an aggregate, and its elasticity is the first derivative.

    [​IMG]
     
    Last edited: Feb 14, 2010
  7. ☭proletarian☭
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    Oh... demand...

    and here I though Deman was some guy....

    Demand makes a lot more sense...

    So, basically, it's the demand for goods at a given cost to the consumer?

    Higher flexibility: more people will purchase more of the goods if the cost is reduced

    Lower flexibility: The demand for a good remains relatively constant unless the change in cost is severe.

    ?


    Question about your example, though: Shouldn't the demand for BMWs also increase with a reduction in cost, since the main reason they sell in such low numbers is their higher cost compared to other vehicles? The overall demand for motorvehicles might remain unchanged, but the demand for a given line of vehicals would be influenced by the consumer cost of that line, no?


    Wouldn't it be eggs that would actually be the other way 'round, as the over demand for eggs (more or less a staple food) would remain about the same. Sales, of course, would be influenced, but only because they effect the supply side of the supply/demand interplay.

    So wouldn't it make more sense to lower the price on the BMWs, selling more at a lower profit margin, than the eggs, which are of a nature that demand is likely to stay high, even with an increase in consumer cost (within reason) across the entire market?
     
    Last edited by a moderator: Feb 14, 2010
  8. eagleseven
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    eagleseven Quod Erat Demonstrandum

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    :lol:

    Most people's eyes glaze over when discussing the dismal science, don't worry...
     
  9. ☭proletarian☭
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    Of course, this'd be more true of true staples such as rice and grain, though eggs should also experience a similar effect, yes?
     
  10. eagleseven
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    eagleseven Quod Erat Demonstrandum

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    If you're interested, the US Government maintains databases of demand elasticities for almost every good in our economy, and many others. Businessmen and consultants use this data to aid companies in pricing their goods.

    Commodity and Food Elasticities: Demand Elasticities from Literature
     

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