Chapter 5

Chapter five introduced and focused on the idea of elasticity, in which it measures responsiveness to changes in the market. Along with supply and demand, it is very important in analyzing changes in the market to see what changes will occur in the good and how it'll be affected. Most common normal goods are elastic, in that something like a change in price would cause the market to respond based on elasticity. Luxuries are an extreme, where they are very elastic due to not being needed by most (although outliers could say it's needed for them), while doctors' visits are inelastic, in that even if it increases in price, not much change would occur. Elasticity is very important, in that supply and demand go with it to be able to understand how a market reacts. It expands on the basic idea of just simple factors affecting how much of a good is sold and demanded, and shows how those factors would actually affect the outcome of the changes with more factors. Some new things are perfectly inelastic supply and demand, with completely horizontal and vertical lines. An interesting example given is wheat, and what would happen if technology helped produce more. Due to the increase in supply and inelastic demand for wheat, the equilibrium point shifts to a lower price with slightly more quantity, and will overall have a negative effect on farmers due to loss of revenue. Elasticity can show how advances can affect people in the market negatively, even if it looks like it'll be more useful.