Market forces influence the major attributes of macroeconomics, such as demand, price, and supply. Analysts apply the concept of elasticity to measure the overall change percentage of a given variable depending on another. The concept of elasticity is significantly helpful for measuring the influence of changes in the economy on products’ demand and prices.
A product’s elasticity is caused by four factors: availability of the product’s substitutes, necessity, its proportional relation to average income, and history of price changes. The theory of elasticity presents a valuable source of knowledge for forecasting price change’s impact on supply and demand rates.
The circumstances existing in the country today are presenting various shifts and trends that experts can analyze or explain using elasticity. For example, the ongoing COVID-19 has led to numerous changes in consumer earnings in different households. This trend has revealed that products with inelastic demand would record reduced changes even if the income level of reduced.
Throughout the pandemic, most of the goods identified as inelastic have been observed to deliver the needed revenue. The government can introduce sale illimitation policies for first necessity goods to stabilize demand in critical situations. Additionally, services and products associated with an elastic demand will be characterized by reduced prices. Such an economic approach has created an enabling environment for more companies in this country to maximize revenues.
Goods characterized by numerous alternatives in any given market tend to have an elastic demand. This means that customers would be willing to purchase them or the available substitutes. Producers and marketers should consider such a situation and make informed decisions.
Economists rely on price elasticity since it helps them to identify the market value and measure or predict the future demand for a certain commodity. In the current market situation, the change in the overall price of consumer products triggers a reduction in the quantity demanded. This trend has affected goods and services that appear to have a higher price elasticity of demand.
The concept of elasticity is also applicable in economics to measure the change in goods based on the production process. The elasticity of supply would help determine the quality and quantity changes of a specific good based on the manufacturer’s decision to employ more workers.
The same approach could be considered if the company chooses to use additional or totally new raw materials. The elasticity calculations help investors and marketers to make timely decisions and be prepared for future market transformations.