Elasticity, Marginal Analysis, and Opportunity Cost
Columbia Southern University
EC 6301: Economics for Managers
Elasticity, Marginal Analysis, and Opportunity
Cost Decision makers in business must consider the elasticity of a product, marginal
analysis, and opportunity cost when forecasting production needs and potential sales. The
elasticity of a product occurs is calculated by dividing the demand of a product by the price.
Elastic products are those that the demand declines with increase of price, while inelastic
products are those that demand is stable regardless of increase in price. Marginal analysis helps
, business decision makers estimate potential profit, while opportunity cost helps decision makers
choose the best product option to present to the market.
Elasticity
Examining elasticity information for two particular goods; one with an elastic demand
(vehicles) and one with an inelastic (gasoline) demand, this paper will examine how market
change will affect demand looking at economic measures of how sensitive one economic factor
is to changes in another. Increase in price may be driven by an increase in demand, a decrease in
supply, or both (Froeb, McCann, and Ward, 2017). Automobile manufacturing companies, car
dealers, and fuel production companies set prices based on several factors. Oil demand and oil
supply elasticity estimates are typically general estimates of the one-month price correlated to oil
supply and demand (Killian, 2022). Extraneous elasticity estimates are crucial for estimating
elasticity recognizing that unexpected changes in oil production and in the real price of oil can be
explained by alternative combinations of short-run oil supply and oil demand curves with
different slopes (Killian, 2022). The identification of the impact price elasticity of oil supply also
requires an instrument that shifts the global demand curve along the global supply curve with (1)
the estimation of the price elasticity of oil supply using U.S. firm-level or well-level data; (2)
bounds on the global price elasticity of oil supply constructed from natural experiments; and (3)
11:14:20 GMT -05:00
Columbia Southern University
EC 6301: Economics for Managers
Elasticity, Marginal Analysis, and Opportunity
Cost Decision makers in business must consider the elasticity of a product, marginal
analysis, and opportunity cost when forecasting production needs and potential sales. The
elasticity of a product occurs is calculated by dividing the demand of a product by the price.
Elastic products are those that the demand declines with increase of price, while inelastic
products are those that demand is stable regardless of increase in price. Marginal analysis helps
, business decision makers estimate potential profit, while opportunity cost helps decision makers
choose the best product option to present to the market.
Elasticity
Examining elasticity information for two particular goods; one with an elastic demand
(vehicles) and one with an inelastic (gasoline) demand, this paper will examine how market
change will affect demand looking at economic measures of how sensitive one economic factor
is to changes in another. Increase in price may be driven by an increase in demand, a decrease in
supply, or both (Froeb, McCann, and Ward, 2017). Automobile manufacturing companies, car
dealers, and fuel production companies set prices based on several factors. Oil demand and oil
supply elasticity estimates are typically general estimates of the one-month price correlated to oil
supply and demand (Killian, 2022). Extraneous elasticity estimates are crucial for estimating
elasticity recognizing that unexpected changes in oil production and in the real price of oil can be
explained by alternative combinations of short-run oil supply and oil demand curves with
different slopes (Killian, 2022). The identification of the impact price elasticity of oil supply also
requires an instrument that shifts the global demand curve along the global supply curve with (1)
the estimation of the price elasticity of oil supply using U.S. firm-level or well-level data; (2)
bounds on the global price elasticity of oil supply constructed from natural experiments; and (3)
11:14:20 GMT -05:00
