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Elasticity / Consumer choice and demand - Essay Example

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According to Mankiw and Taylor, elasticity is the extent to which consumers and producers are willing to change the quantities they demand and supply respectively in response to price change. Elasticity is represented in the demand and supply curves. One can calculate the…
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Elasticity / Consumer choice and demand
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Elasti Consumer Choice and Demand According to Mankiw and Taylor, elasti is the extent to which consumers and producers are willing to change the quantities they demand and supply respectively in response to price change. Elasticity is represented in the demand and supply curves. One can calculate the elasticity by dividing the quantity supplied/demanded as a percentage of price change. In this regard, both demand and supply can either be elastic or inelastic. The demand/supply for a particular product can be said to be elastic if elasticity is greater than or equal to one otherwise the demand/supply is inelastic (88). If the brand of an automobile, say Ford, has an elasticity of 1.5 and another, say Nissan, has 0.03, the difference in elasticity could arise from a number of perspectives. It implies that the price of Ford vehicles affect the quantity demanded and supplied while the same price change does not affect the quantity of Nissan automobiles demanded/supplied. In other words, the demand for Nissan vehicles is insensitive to price change. The difference in the elasticity of Ford (1.5) from that of Nissan (0.03) could arise from the fact that most consumers prefer Ford automobiles to Nissan vehicles. Another reason could be that Ford vehicles are more highly priced than Nissan Vehicles (Mankiw 90).
The sunk cost fallacy occurs when an organization or company continues to invest in a suspicious project even after expending considerable effort, time, and resources on that project. For example, former U.S. President George W. Bush insisted that further investment in Iraq was warranted in order to complete the job that he had already began. Nevertheless, he United States has already substantial amounts of money in billions of Dollars by keeping soldiers in the Middle East. Bush’s urge to the Obama administration to keep the soldiers was irrational since the United States had lost billions of Dollars in Iraq and Afghanistan without achieving tangible results (Froeb and McCann 28).
Works Cited
Froeb, Luke M, and Brian T. McCann. Managerial Economics: A Problem Solving Approach. Mason, OH: South-Western Cengage Learning, 2010. Print.
Mankiw, N Gregory, and Mark P. Taylor. Economics. London: Thomson, 2006. Print.
Mankiw, Nicholas G. Principles of Economics. Mason, Ohio: Thomson South-Western, 2011. Print. Read More
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