Question

Discuss examples of 1) elasticity, including an explanation of why or how they demonstrate the concept of elasticity; and 2) examples of externalities, again including an explanation of why or how they demonstrate the concept of externalities.

Answer 1

Answer: The listed can be explained as follows :-

Explanation:

1. The change in demand or supply of a product due to change in price is called elasticity.

For example the necessary goods are usually less elastic as there is no alternative available for that whereas luxury goods are more elastic as one will first avoid luxury when income declines or price rise.

2. Externalities refers to the impact on an unrelated party that occurred due to activities by some other party.

For example- XYZ company makes cakes and cookies and they are launching a new product of fat free brownie, now it may result in customer base shifting from older product to new product.

This, happened because of consumer preference towards healthy product.