Concept of Elasticity (Demand and Supply)

Use an elasticity concept to explain each of the following observations.

a. During economic boom times, the number of new personal
care businesses, such as gyms aand tanning salons, is proportionately greater than the number of other new business such as grocery stores.

b.Cement is the primary building material in Mexico. After new technology makes cement cheaper to produce, the supply curve for the Mexican cement industry becomes relatively flatter.

c. Some goods that were once considered luxuries, likea telephone, a new considered virtual necessity. As a result the demand curve for telephone service has become steeper over time.

d. Consumers in a less developed country like Guatemala, spends proportionately more of their income on equipment for producing things at home like sewing machines, than consumers in a more developed country like Canada.

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...ncreased employment coupled with the promise of future earnings people are more likely to spend freely. Therefore, during economic boom times, people are more likely to spend their discretionary income on personal care businesses. The elasticity explanation is clear when the comparison between the economic boom times and recessionary times is made. During recessionary times when income either decreases or the potential for future earnings decreases people have to decide how to spend their money more carefully. Necessary goods, like grocery stores, will not see a great shift in the demand for their goods (there is actually some argument that during recessions grocery stores actual see increased sales because restaurants which have elastic demand models are more expensive and people turn to eating in during recessions). However, less essential goods or services, like gyms and tanning salons, have an elastic demand and are not as profitable during less prosperous times.

b) The flatness of a supply curve indicates the elasticity of the supply ...