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Elasticity: what is it and why is it important?

Published on May 30, 2019   22 min
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Hi. My name is Dr. Sangaralingam Ramesh. Welcome to this Henry Stewart talks series "Introduction to Microeconomics". Talk number 6. In this talk, we will be analyzing elasticity and seeking to answer the question what is elasticity and why is it important in economic analysis.
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In order to consider elasticity and why it's important, we need to think about elasticity of demand and elasticity of supply. So elasticity of demand and elasticity of supply may be very important knowledge for different sectors of the economy. For example, farmers may need to know what's going to happen to the demand for their crops, if their harvest increases, because an increase in the harvest will change the price of the good and this may also change the quantity demanded, but this depends on the elasticity of demand. Firms may need to think about advertising and the effect of advertising on the demand for their products, whether it's going to realize an increase in sales or not and governments may need to know about the elasticity of demand for the purposes of imposing a tax on good, because imposing a tax may either not affect demand or may shift demand. In which case, the government will face change in revenue. The government doesn't want to impose a tax on a good, where demand will fall and as a result, it'll lose tax revenue rather than see an increase in tax revenue. So for each of these different types of groups, farmers, firms, and governments, the importance of the elasticity of demand and supply concept is in the determination of answering the question, what is the impact of each on total revenue?
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Elasticity: what is it and why is it important?

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