Elasticity in our world(by Isaac Ho 5X)

During the current economic recession, many consumers are looking to buy cheaper goods and services whenever they can. It is not difficult to understand since retrenchment is high and employment rates are low. Economics is part of our daily lives and it can be seen anywhere and everywhere. Elasticity is one of the topics under economics that I am going to elaborate on.
Elasticity is a measure of the price responsiveness of the quantity demanded and quantity supplied. Three forms of elasticity include price elasticity, cross elasticity and income elasticity. Goods can either be elastic or inelastic. Elastic goods show an increase in quantity demanded when the price falls and decrease in quantity demanded when price rises while inelastic goods show no change in quantity demanded whether or not the price of these goods increases or decreases.
Kobe beef is a good example of elastic goods as most people know about it and it is popular amongst most people. The lower the price of Kobe beef, the higher the percentage of quantity demanded by consumers of Kobe beef. However, when the price of Kobe beef increases, the percentage of quantity demanded of Kobe beef decreases. The inversely proportional relationship between price and quantity demanded illustrates price elasticity. Substitutes for beef such as chicken can also affect the percentage of quantity demanded. If chicken becomes cheaper, the percentage of quantity demanded of Kobe beef decreases – thus showing cross elasticity. Income of consumers is another factor which determines the percentage of quantity of demand of Kobe beef. In good times, employers are able to pay higher wages to their employees. They now have the ability to purchase Kobe beef as it is more within the means of these consumers. Income elasticity of demand can be seen in this situation. Thus, Kobe beef can be considered a luxury good as people do not need to rely on it to survive.
Petrol is a magnificent example of inelastic goods. It is something that consumers need in order to power their vehicles. For example, the price of petrol drops. Many consumers will rush to buy petrol. However, they cannot fill up their vehicle petrol tanks more than the maximum capacity. When the price of petrol increases, people still need to purchase petrol as it is a necessity - even though some consumers may switch to taking public transport. They also cannot fill up beyond the capacity of their petrol tanks. Thus, price changes do not alter the percentage of quantity demanded of petrol because consumers depend on it to drive their lifestyles and it is a vital part of our everyday lives nowadays.
The percentage of income a consumer receives from his/her employer determines the ability of the consumer to purchase a good he/she desires. The higher paid the consumer is, the better his/her ability to buy that particular good. It does not help that the consumer is willing to buy the good but is not able to do so.
The price of substitutes is a factor affecting the percentage of quantity demanded of a good or service. In the case of meat such as Kobe beef, there are various substitutes ranging from chicken to fish, pork, etc. The percentage in quantity demanded is inversely proportional to the price of these goods i.e. the increase in percentage of quantity demanded is due to the fall in price of the good and the decrease in percentage of quantity demanded is due to a rise in price of the same good.
The concept of elasticity is crucial in Economics as it is linked to demand and supply. It greatly helps suppliers determine their ability to supply goods and services as well as helping consumers’ to determine their ability to purchase a given good or service in a given time period. The government is also able to determine how much GST is charged on a certain good or service. This allows them to increase their profits or more importantly, judge how many consumers will buy the good and utilize the service. Economic concepts can be seen all around us if we are observant enough to notice these concepts. So take a good look and see what the world has to offer!

Demand and Supply-pin chun

In my home country Taiwan, there are a lot of headings which are about typhoon and the change of price of vegetable in every summer time. We can use the concept of demand and supply to explain the phenomenon.

  When the central forecast releases the news which is about there is a typhoon is coming, the demand of vegetables will increase. It is due to the expectation of the consumers who anticipate the price of vegetables are going up. It is because consumers project that the typhoon will destroys the farmlands and the supply of plants may therefore is reduced. They afraid that the price of it will increase dramatically.

For demand, as expectation is the non-price factor, an increase in expectation of vegetables will cause a shift in demand from D1 to D2. At the same time the suppliers try to reduce the cost of  the damages, they will harvest the vegetables before the typhoon although they are under ripe. So the supply will increase and the curve of it will shifts from S1 to S2. At the same price level, P, quantity is therefore increased from Q to Q1.

  During the typhoon, the supply of vegetable will drops largely as the plants are destroyed. Demand of vegetables doesn’t change, so the price of it will climbs up with a drop in supply. The curve of supply will shifts from S1 to S2. And the price will rises from P1 to P2. At this period, vegetable is therefore said to be scarcity. However some suppliers want to earn the high profit at this period so they store the vegetables before typhoon comes. As the result, there may have a low price of vegetables after typhoon which caused by excess of supply. It is because after typhoon demand will shift back whereas the supply is too much that demand cannot  meet.

    To help with this situation the government can encourage the farmer  shift the land to the northern. Because the typhoon always come from southern of Taiwan . if they move some to Tauyuan for example which is the city that have a lot of flat lands. Or  the government can import some vegetable from foreign country during the emergency time. However it is very difficult to accepted by the society because it may lower the income that farmers could have. 

 

 

 

 

 

Elasticity

Elasticity refers to the amount of change in demand or supply as of relation to price changes in the good. Goods are known as elastic goods or inelastic goods. An elastic good would show a marked decrease in quantity demanded should there be an increase in price while While an inelastic good will not have it’s quantity demanded decrease significantly as of relation to the increase in price

An example of an inelastic good would be petrol. Regardless of how much you increase the price of petrol (reasonably) , the demand of oil by people will generally be the same and people would still buy it.( Because petrol is used by a large percentage of people even in singapore, our parents who drive cars cannot find substitutes for petrols!. thus the demand of oil is known as inelastic).

Let us make an example of a elastic good using milo. The more the price of milo goes up the less likely people will choose to buy it because with the same amount of money that they must use to buy milo(now increased in price) people would now choose to buy substitutes (e.g they could buy coco, or horlicks). Resulting in a fall for the demand for milo. Thus, milo can be known as an elastic good because it less of a necessity and people will stop buying it when the price goes too high because the opportunity cost for buying the good becomes too high that it deters consumers.

There are many factors that affect the elasticity of a good. Number and price of close substitutes within the market is one of the factors i want to go through - The more similar (or closely related) substitutes of a good is present in the market the more elastic the good will be. The demand will decrease in relation to a change in price because people will decide that the opportunity cost for buying the good becomes too high and they would rather buy some other good as a subsitute.( that is why oil is an inelastic good because there aren’t really substitutes for oil!).

Percentage of income spent on a good is another factor that affects elasticity of a good - It is reasonable to say that the smaller the percentage of your income being spent on a particular good the more inelastic demand will be.This is very logical and can be sought through common sense. For example your parents gave u $100 to do some shopping. You suddenly remember that you just lost your eraser in school. You walk into a bookstore and just as u picked up an eraser, you realise that the price of the eraser has gone up from 50cents to 1 dollar(50% increase!) would that deter you from buying that eraser? In most (consumer)cases, no. Because in relation to the 100 dollars you have, 1 dollar is just an insignificant amount. Thus comes the logic of Percentage of income spent on a good (e.g erasers, rulers)

Thus,the concept of elasticity is important because Elasticity is closely related to the concept of demand and supply. Elasticity helps economists understand suppliers ability to increase stocks and the consumers ability to purchase. It affects the amount of tax placed on different products by our government for them to maximise country profits and at the same time make life affordable.Thus the concept of elasticity, like demand and supply, is always around and of close relation to us!

Darren Low 5w

Opportunity Cost

Opportunity cost in economic terms is the next best alternatives goods or service. But in my case, I’d like to apply it to my daily life in school. Excluding holidays, weekends and other special occasions, there are only 181days of studying in school per year. The school fees for IB students are approximately S$24000 per year. A school fees per day is S$132. So if someone dares you not to go to school for $100, it is not worth the money as it is a deficit of $32. With no qualifications and experience, you will have to work at Macdonald’s at $4.5 per hour rate for 7.1 hours. People might think it will be worth not going to school if someone gives $150, but its not. For the 6 plus hours not attending school, you will miss a lot of lessons and will have to do self study to catch up with the classmates. Because there is no one coaching you, you will find most of the things hard to understand and will take a longer time. In the other hand, if one person didn't accept the money and went for school, he/she will save much more time and effort and wastes no money.To study hard or have fun throughout the teenage life and not study, will make alot of difference in the future. If i slack all the way even after the final exams, i don't get good grades and i won't be recognised in any university and may not get accepted anywhere. Many people say youth, teenage life is the best stage in life as compared to the adult world, youth don't suffer that much. So should we slack now, or study hard now and regret later? Studying hard, getting good grades make your status shine, and you will be able to get into a good university and do furthur studies and maybe you might get headhunted by well-known company and get high pays. The point i'm trying to highlight is that, if i quit school and don't study, and get an available job, even with the 6years working experience compared to other friends who would stay in school for furthur studies, i won't be able to catch their salary. Is the choice of weather someone would like to endure the "suffering" in school and get a decent job with good pays, or jump into the reality faster so you won't "suffer" (but will suffer even more later on). I chose to study hard in school now, and have a good life later on in the future. Then i'll need finish this assignment and pass it to Ms.Vyna.

*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

Supply and Demand (Annabelle, 5W)

For the first time in 16 years since 1993, fast-food chain Kentucky Fried Chicken (KFC) in Japan has announced that from April 24th 2009 onwards, all items sold at all 1,150 outlets nationwide will experience a price hike of about 7%. It is not only KFC that has announced the sudden need for consumers to pay higher prices – various other restaurants and cafes across the country have raised their selling prices, and this is mainly attributed to the sudden jump in dairy, meat and beer prices as well as the price of wheat, corn and soybeans, which are used in the chicken feed that fast-food giants such as KFC provide for their birds. This is a clear-cut example of the theory of supply and demand, which can be further understood through the use of definitions of the two terms, diagrams explaining shift and movement and examples of the theory evident in real life situations.

Firstly, what exactly is supply and demand? Supply, by definition, is the amount of product that a producer is willing and able to sell at a certain price at a given time, ceteris paribus. The Law of Supply states that price of a good is directly related to supply; for example, the supply of a good will increase as prices increase and decrease as prices decease. At higher prices, producers are more willing to offer their products for sale. Demand, on the other hand, can be defined as the amount of a product that a buyer is willing and able to buy at a specified price at a certain time, ceteris paribus. The Law of Demand states that if prices are low, more people are able to afford to buy more goods more frequently than they can at a higher price. However, if prices are high, people tend to choose to buy other cheaper goods as substitutes for the more expensive goods they can no longer afford.

The easiest way of looking at the theory of supply and demand would be through using the recent worldwide recession as an example. Millions of people all over the world lost their jobs, leaving many families with no source of income. Products that people could once afford were suddenly too expensive, even though the price of the good had not changed at all. Sale of real estate, for example, has plummeted compared to figures from early 2008, and the sale of small cars has dropped about 15% while sale of luxury cars have dropped about 50% since the recession hit. The demand for unnecessary luxury items such as jewellery and fine dining will decrease as people begin to watch their expenditure, leading to a decrease in demand for these goods. As a result, producers find that they have no choice but to sell their goods at a lower price, therefore leading to a decrease in their overall profit levels. Lower profits lead to a lower desire for producers to produce their products. Such unappealing scenarios eventually lead to a decrease in the production and supply of a good, simply because producers are unwilling to offer their products for sale when the demand for such a product is low.

The two diagrams below illustrate how the supply and demand of luxury cars has been affected by the recession.

Figure 1

Figure 2

In Figure 1 there is a shift leftwards on the demand curve from Q1 to Q2 as there is a decrease in quantity demanded of the good although price, P1, remained the same. In Figure 2 there is a shift leftwards on the supply curve from Q1 to Q2 as there is a decrease in the production and supply of the good, although price, P1, remained the same.


Supply and demand is not a difficult concept to grasp. Ultimately, everything is interlinked in one big equation – you can’t experience a change in demand without seeing some kind of change in supply, whether gradual or immediate. All around us the theory of supply and demand exists, not only appearing on the news because of the recent worldwide recession but existing continually in retail outlets, restaurants and real estate, just to name a few. The theory of supply and demand is, undoubtedly, one of the most fundamental concepts when it comes to economics and is perhaps, even, the backbone of any market economy worldwide.

- Annabelle, 5W

Demand and Supply-Gurjeitpahl (5Z)

It is feared by the entire world population that this recession is going to be the worst one to have ever hit Wall Street. Shocking news about businesses, companies, major firms and industries closing down or going into bankruptcy have made the headlines. Seeing words such as plunging, crashing, collapsing, bankruptcy, and job slashes has sure made us all very fearful of a tumultous time ahead. This brings me to my posting on Demand and Supply and how the recession has affected this crucial part of Economics.

One of the most pressing issues about the recession is the massive unemployment. People are losing jobs on such a big scale that a good fraction of them are left with absolutely nothing apart from the clothes on their backs. It is expected that 99,000 people in Singapore itself will either be retrenched or suffer a cut in their wages. Because people have less income now, they have been forced to watch their expenditures at all times.

Demand is defined as the willingness and ability to purchase a good or service. Because people's income levels have declined, the demand for many things has gone down. One such example is the decline in demand for holiday tours to other continents. At the recent NATAS fair, we realised that along with us, others in search for a break amidst this tension had opted for short trips within Asia and that too on Budget airlines. This is because we cannot afford to fork out too much money on holidays- a luxury, nor can we make our getaways too long because the longer they spend in a foreign country, the more we have to take out on food, accomodation, and transport etc. This will also set the demand for these to decline.

Supply is defined as the ability and willingness to produce a good or service. The Law of Supply states that as the price of a product increases, the quantity supplied of the product increases, ceteris paribus. With reference to the preceeding example and obeying the Law Of Demand, when people can no longer afford to pay the high prices of the expensive airlines, the quantity supplied will decrease. This will cause them to earn less profits. The possible result of companies not earning well is that they run into debt, or if it's more serious, they go into bankruptcy.

Amidst the recession, interestingly the Food&Beverage (F&B) Industry is both being affected in the good way and in the bad. Why I say this is because food is a necessity. The demand for fancy restaurants has plunged because dining in at a posh place has become inaffordable for many. Thus, as restaurants are becoming increasingly deserted, they're lack of profit earned cannot compensate for their expenses. Thus, fancy dining has been dished away to a far extent. On the other hand, people's demand for economy meals has increased. They are becoming happier about the fact on reducing the amount spent on each meal as they have to spend on this everyday. I'm sure there are many other families just like mine which just prefer to have home food.

I feel that the recession has completely upset the whole economy because in demand and supply alone, there have been so many changes and at the moment, there is no light visible at the end of the tunnel for businesses, companies, firms and industries alike.