*Elasticity & Recession* Mark Ho (5 aXe)

• Ok in today's world as we know, revolves around the price & demand factors affect us consumers on how we look at a product, of course taste is also another part that compliments these factors however given the strong rivalry amongst companies, products are pretty much on the same level. I shall focus on a few terms and how they play a part in our real globalized world today especially with the really sad sad recession . These terms are price elasticity of demand, income elasticity of demand, cross elasticity of demand & price elasticity of supply.

• In general, elasticity in my definition is the flexiblity of change in demand/supply of a good by a change in other various factors especially price. The rest of the elasticity terms are pretty much self explainatory through any economics textbook. Ok first off the US is seen at an economic recession, demand for goods still fall drastically even as the bailout plan was introduced, meaning that the income of the workers have increase proving that the income elasticity of demand is inelastic as a change in income did not have an effect on the quantity demanded, making Mr Obama pump in more money to help the worsening market.

• However necessities such as bread & fuel etc are not affected as badly, a change in its price will not have a deep impact on its demand, hence the price elasticity of demand of such goods remain stagnant and inelastic. However other inferior goods will have demand swings, as they are considered to people as more of a want & they are definitely more likely to wait for a price drop during the long run as would be expected of a company experiencing low demand. Looking at goods of close substitutes such as the ford & BMW, currently less people are buying cars because of the current economic situation, both companies are heavily competing for sales. Therefore, i can say that the cross elasticity of demand for ford & BMW is elastic, as a change in price in either sides could result in the company making big losses or a revenue boost. Currently, car prices from every company are dropping their prices slowly, some even by $20,000. This shows that companies producing the same type of goods are in danger of being substituted by another company or their products being a substitute to another similar good.

• In the gaming industry, some of the top industries such as Electronic Arts & Blizzard Activision are retrenching employee by the thousands due to the suffering of great losses despite gaming being the trend of life for youngsters & adults. However a change in the prices did not change the quantity of games being supplied as people are still buying the games causing price elasticity of supply for games to remain inelastic. Though the market for games have worsen, it is not in desperation of reaching bankruptcy.

• Following closely, we look at the US & European market which are struggling in the recession, however Japan that trades alot with them are not heard of retrenchments or bankruptcy in the country. This is due to the fact that their elasticity factor has been taken importantly as part of their economics, hence the government of Japan have loan banks and housing agents money at a very low interest rate close to zero, which in turn can be lent at a slightly higher interest rate to consumers or the loan could be used to keep prices low while covering their costs. This means that price elasticity of demand is affected which will help the economy as the prices are lower and with loans that have almost zero percent interest, demand for goods and bank loans increases. One thing to note, Japanese companies usually try their best not to retrench any of their employees, instead they cut costs by producing less supplies keeping their quality of goods high. Hence this has greatly reduced unemployment in Japan keeping the workforce intact. But the reason the US & European economy are falling apart is mainly because they are doing what Japan did 10-15 years ago when the asian financial crisis hit, money pumping into the economy. Not taking into account that many goods are affected by elasticity, Japan after learning its lesson from the crisis resolved it with very low interest rates for loans causing growth throughout the years from 1995 to present time to be rather stagnant while the US & European economy sky rocketed, eventually when recession hits the 2 economies fell hard to the floor while Japan stands strong against this recession. Clearly this shows that elasticity of goods affected by prices and people's income play an extremely important role in the revival of the economy, hence a fall in income or a huge retrenchment in the US will reduce demand as more people are likely to save, especially those retrenched. And therefore income elasticity of demand is important, hence it would have been better if the government tried to help struggling companies & industries in other ways like mulitple tax cuts, or grants for every employee the company has other than allowing massive retrenchments to relieve the worsening economy. Even if more money was being pumped into the economy by the government, there wouldn't be much improvement of the economy, as it is mainly to help cover the losses of the economy, even the news is saying it most of the time.

• Overall I am indeed amazed that elasticity plays an extremely important role in the economy, although i kinda know I'm a little messy jumping from topic to topic. But this is to illustrate the different concepts of elasticity, and as far as I'm concern it is very closely related to demand & supply, seemed to be drifting towards it really. Elasticity helps me better understand the economical situation of the world and I feel it plays a really fundemental part in the study of economics. Indeed this topic is rather vast, but I'm keeping it to this. Well i conclude, that the factors of elasticity is present in every aspect of business & economy, indeed this topic is the most challenging of the 3. Positive Critism Plz dl^-^lb