Elasticity

For the personal electronic products such as computers, tablets etc, the income and price both are elastic. The change in the price or income also causes the relative change in the demand of computers or tablets. Electronic goods have become essential products for the people in their life as any new or improved product is taken by the consumers. But, it is suitable for only developed economies as in some developing countries still it comes in luxury category. If the price of tables or computers declines, the demand of these products increases as people look towards taking better product from previous one (Cordes, Ebel & Gravelle, 2005). Similarly, an increase in income level also causes an increase in the demand of these products to show better life-style.

For a particular product, price and income elasticity generally shows the similar indicator as if the demand of a product declines due to increase in price of that product then surely the demand will also decline with a decline in income level. It is because that product is not an essential product (Boyes & Melvin, 2010). The magnitude of the change in the demand can vary from product to product such as inferior goods, luxury goods and normal goods.  Firms have less control over pricing based on a product’s elasticity as if the income level drops significantly then firms have less ability to control its variable production cost, which reduces the ability to control on the pricing of products based on product’s elasticity. In the short-term income level decline or recession period, the firms has to halt their production due to decline in demand as they will not be able to reduce the variable costs in short-run, which can be used to decline the price for increasing demand in recession period. The percentage spent on a good rule of elasticity is used for this (Landsburg, 2010).

References

• Boyes, W.J. & Melvin, M. (2010). Microeconomics (8th ed.). USA: Cengage Learning.
• Cordes, J.D., Ebel, R.D. & Gravelle, J.G. (2005). The Encyclopedia of Taxation And Tax Policy (2nd ed.). USA: The Urban Insitute.
• Landsburg, S. (2010). Price Theory and Applications (8th ed.). USA: Cengage Learning.