Elasticity Essay

1035 words - 4 pages

This paper will prove that some products or services sell differently than others depending on their substitutions. Often times these differences depends heavily on the price, numbers, availabilities, etc. with in category. This paper will also discuss and cover the following questions that will be broken into the following parts:ØPart One: Is the price elasticity of demand for said product price elastic or price inelastic? Based on this determination what would be the impact of raising the price of the product? What would be the impact of lowering the price of the product?ØPart Two: What has happened to the price of the substitutes and complimentary goods/ services for your selected product over the last year?ØPart Three: How have price adjustments affected the demand for the selected product?There are four key concepts that are taken into consideration within this type of process as well as the process gained from the simulation.ØPrice Elasticity: Price Elasticity of Demand the percentage change in quantity demanded divided by the percentage change in price. Price Elasticity of Supply the percentage change in quantity divided by the percentage change in price. (Colander, 2004)ØSubstitute: Goods that can be used in place of one another. (Colander, 2004)ØComplements: Goods that are used in conjunction with other goods. (Colander, 2004)ØIncome: Payments received plus or minus changes in value in one's assets in a specified time period. (Colander, 2004)I have chosen to talk about child daycare services offered my nannies. My reason's for choosing this topic is because I find it to be very price elastic in the concept that there are several substitutes. This topic is also one that affects many people and I feel it is an important topic. Economics deals with money, products, services, competition, etc and with in the childcare community is a lot of that. There are so many choices when it comes to daycare and making the right one is hard. Economically speaking making the right choice is hard because many times there is a budget constraint. Everyone wants what is best for their child, nothing less, so keeping this in mind the competition or substitute to childcare facilities fall into several different categories.ØIn home careØNannyØMontessori settingPart OneElasticity decreases from infinity to zero on a straight-line demand curve. In the range of the demand curve where elasticity is more than 1, decreasing price increase as revenue. In the rage where elasticity is less than 1, however, decreasing price decreases revenue. It seems that when we talk about the topic of Childcare there really is no low-end service. There are however cheaper services. Some substitutes to having a nanny, or lower end services, would be childcare care facilities or even home daycare, whether it is an one's home or at another person's home. A few other substitutes but not always available is having a...

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