Thursday, January 12, 2012


Bloody interesting stuff here..if you're brave enough to read on:

Demand Elasticities

Elasticities are dependent on the time frame in which they are calculated. For most goods, dumand tends to be more elastic in the long-term. For example:

Gasoline/Microsoft Software
a) Short term-An increase in price doesn't really affect demand because people still have to use it (demand is approx inelastic)
b) Long term- People switch to more 'green'/efficient cars or buy cheaper software (demand is more elastic)

Refrigerator/Automobile/Capital Equipment (DURABLES)
a) Short term- Price increase causes people to stop buying (demand is elastic)
b) Long term- Price increase does not deter people from buying because of the wear and tear effect on the capital they own (demand is less elastic)

Supply Elasticities

For most products, long-run supply is much more price elastic

a) Short term- Firms face capacity constraints in the short run and need time to expand capacity by building new facilities/hiring more workers. If price increase, firms would like to supply more, but they are limited by CAPACITY CONSTRAINTS (almost price inelastic)
b) Long term-Firms have now expanded facilities and are more price sensitive (more price elastic)

The opposite is true for the supply of DURABLES! (eg: secondary supply of metals)

Ok, told you it's BLOODY interesting. Have your eyes bled yet?

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