Opportunity Cost: what one gives up when choosing between options. This can be money, but it can also be an intangible asset such as happiness. The financial portions of opportunity cost can be calculated, but the intangible costs need to be taken into account as well.
Opportunity cost is important because it takes into account what one gives up and what one gains in different scenarios, and helps inform decisions.
I could attempt to become a musician. I would follow my high school dreams, live on the road, and play music across the US. I might even become a successful musician, as I have a pleasing voice, and am a decent songwriter. However, if I became a musician, I would not be doing something that was helpful to other …show more content…
If the price is raised, will people still want it? If yes, the demand is “inelastic,” if no, then the demand is “elastic.” This concept is stated in terms of percent change. If changing the price of a good or service by even a small percent makes it so people only rarely will buy the good or service, then that would mean it has a very elastic demand.
If raising the price of something would not impact the demand (and there were no moral objections), then a producer might raise the price. However, if raising the products price would greatly affect the demand, then a producer is unlikely to do so. An example of elastic demand would be the Dollar Tree. If they charged 10% more ($1.01) for their (usually inferior) products, then their customer base would likely be very angry, and instead shop at the 99 Cent store. In comparison (because statistics are less helpful without industry standards), a 5-and-dime store I went to had inexpensive products in a range of prices, and if they charged $1.01 for the same product as the Dollar Tree, customers would most likely not even …show more content…
I try to only spend money when I can either get a good deal, or if I need something. My spending is only inelastic in a few areas: monopolized required textbooks, coffee (honestly cannot get through night classes without it), and necessary toiletries. Most other things I will either find something that costs less, or only rarely buy the item. If I am being honest, there are probably some food items that I would buy even if they cost more, but what exactly those items are changes over time with whim rather than price.
Price Elasticity of Demand is very much a calculation. I could not see using this concept in my daily life, however, if I do go into business, this will be a useful calculation for anything from the demand of a product or good, to the demand of a service. Maybe I would use it as an accountant, however, I know that some accountants charge exorbitant fees, and I do not want to charge people “an arm and a leg” just because I can.