David's Blog

What has the least price elasticity in your life?

A recent entry by my friend David B. Do check out his blog at http://www.davidbonifacio.com/everydaydays.. Great life illustrations from day to day examples:

Elasticity of Desire

First thoughts

When I was a kid, maybe 9 or 10, I would buy a pack of candy for about
P30.00, take it home, and sell them for P20.00 each to my younger
brother. I used to wonder why he always bought them - even though he
knew how much the whole pack cost (on other grocery trips he’d buy his
own pack and still buy my pack at crazy prices). The few times he
didn’t buy them was when he didn’t have any money, and even on those
occasions, he was ready to borrow from his brother Shylock (my earliest
experience of the world of money lending).

As I got older, I realized, it was not so much the cost that
affected his decision, as much as the value he placed on candy. To my 7
- 8 year old brother, money didn’t mean anything, but the sweetness of
sugar did. So it didn’t matter how much money it cost him, because in
the end he got what he wanted.

Elastic and Inelastic

Fast-forward to my university days studying Economics. We’re talking about the price elasticity of demand.

Note: In economics, the price elasticity of demand
is an elasticity that measures the nature and degree of the
relationship between changes in quantity demanded of a good and changes
in its price.

So the idea here is, when goods are very elastic, small changes in
price affect the quantity demanded greatly. Example, when the price of
X goes up, the demand for X goes down since less people can afford it
or are willing to spend so much for it. Good are considered inelastic
when the quantity demanded does not change much with the price.

To Joshua, my younger brother, the relationship between candy and
it’s cost was inelastic. Changes in the cost did not change his demand
for candy.

The secret to happiness

One thing I never understood when I was younger, was that no matter how
much I cheated my brother on the price, and no matter how much money I
made at his expense, he never seemed to care. He was happy with his
candy.

Looking back I wonder, had my brother discovered the secret to
happiness? And, like him, have I found something that makes the cost,
no matter how much it gets, seem negligible?

Desire is inelastic. So what do I desire?