Elasticity
Elasticity is a term used in economics and business to describe the responsiveness of demand or supply to changes in price or other economic factors. It is an important concept for product managers to understand because it can help them make decisions about pricing, production, and marketing.
Price elasticity of demand is a measure of how much the quantity of a good or service demanded changes in response to a change in its price. If demand is elastic, a small change in price will result in a large change in quantity demanded. If demand is inelastic, a change in price will have little effect on quantity demanded.
For example, if the price of a luxury car increases by 10%, and the quantity demanded decreases by 20%, then the demand for luxury cars is elastic. On the other hand, if the price of insulin increases by 10%, and the quantity demanded decreases by only 5%, then the demand for insulin is inelastic.
Price elasticity of supply is a measure of how much the quantity of a good or service supplied changes in response to a change in its price. If supply is elastic, a small change in price will result in a large change in quantity supplied. If supply is inelastic, a change in price will have little effect on quantity supplied.
For example, if the price of wheat increases by 10%, and the quantity supplied increases by 20%, then the supply of wheat is elastic. On the other hand, if the price of rare earth metals increases by 10%, and the quantity supplied increases by only 2%, then the supply of rare earth metals is inelastic.
Understanding elasticity can help product managers make decisions about pricing, production, and marketing. For example, if demand for a product is elastic, a price increase may result in a significant decrease in sales, so the product manager may need to consider lowering the price or finding ways to reduce production costs. If supply is inelastic, the product manager may need to find alternative suppliers or consider investing in new production technologies to increase supply.