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Elasticity of Wants

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REACTION PAPER By Elizabeth Orendain-Dela Cruz The Elasticity of Wants Alfred Marshall’s Principles of Economics (1890) Elasticity is a way to measure how the change in one thing (price) causes change in another (demand). Understanding elasticity of demand is valuable in knowing the dynamic response of supply and demand in a market. Such understanding will enable an enterprising person (businessman and/or consumer) to achieve a favorable effect (higher revenue/best value of one’s money) or avoid unintended outcome. For instance, a company (manufacturing commodities like shampoo or toothpaste) considering a price increase might find that by doing so, it lowers profits if demand is highly elastic, as sales would fall sharply. Similarly, a company considering a price cut might find that it does not increase sales, if demand for the product is price inelastic. It is therefore imperative to correctly analyze data on the elasticity of the company’s products in the market before deciding whether to increase or decrease its price viz-a-vis its total revenue and quantity of demand of such products. Alfred Marshall in his 1890 book Principles of Economics, particularly in his discussion on elasticity of wants tried to explain and illustrate the relationship of price and demand and its overarching influence of one over the other and vice versa. His analysis underscored the relationship of price and demand; he demonstrated how an increase or decrease in price affects the decrease and decrease of demand of a particular good. Although on a personal level I found the products/goods he used in his illustrations quite obsolete to modern students of economics (the fault of which is not entire his as those were the available and commonly used commodities in his time), the discussion is very instructive and comprehensive. Marshall described Elasticity of Demand as thus: “And we may say

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