Definition of Elasticity ~ Price is the value of goods determined in money or other equivalent means of exchange, which must be paid for goods and services at a certain time and in a certain market.
|Definition of Elasticity|
The most common use of this elasticity concept is to predict what will happen if the price of goods/services is increased. Knowledge of the impact of price changes on demand is very important. For the producer, this knowledge is used as a guide for how much he should change the price of his product. This is closely related to how much sales revenue he will get.
For example, suppose that the cost of producing a good increases so that a producer is forced to increase the selling price of his product. According to the law of demand, this act of raising prices will obviously reduce demand. If demand decreases only by a small amount, the price increase will cover production costs so producers still make a profit. However, if this price increase turns out to reduce demand so much, then it is not a profit he gets. His sales may not be able to cover his production costs, so he suffers a loss. It is clear here that producers must consider the level of elasticity of their production goods before making a decision. He must estimate how sensitive the consumer is or how much the consumer will react if he changes the price by ten percent, twenty percent, and so on.
In general, elasticity is an understanding that describes the degree of sensitivity/response of the quantity demanded/offered due to changes in factors that influence it.
- Suparmoko, Introduction to Microeconomics, BPFE Yogyakarta, 2000,
- Farid Wijaya, Macroeconomic theory, BPFE. UGM, Yogyakarta 1999,
- http://myilmu Lintas Hukum.blogspot.co.id/2015/09/ Ekonomi.html
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