Question

Give 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.

-(Take into consideration) Assume we have read the definition of externalities ourselves in the textbook and just post your examples with a statement about why your examples are positive or negative externalities. Elasticity is a little different. I still don't want you to copy the definition out of the book, but I want you to know the difference between something having elastic demand (really elastic quantity demanded) and just following the Law of Demand.

Answer 1

a) Elasticity can be defined as the responsiveness of the demand in relation to the price in the market. If in response to the price change the demand changed more in the market then the demand will be considered as elastic if the change in demand is less it will be inelastic. For example, if the price of ham increased by 10% and the demand decreases by more than 10% then the demand for ham is elastic, if the demand has decreased by less than 10% it was inelastic. demand will decrease anyway as the good is following the law of demand. but how much is it decreasing will determine its elasticity.

b) Externality is when a third person i.e. the person who is not directly involved in an economic transaction gets affected by the action of two people or an economic even in the market. That can be both in a positive or a negative way. For example, a vaccination can be beneficial for the whole society as it will benefit those also who are not vaccined by preventing diseases  and helping a healthy workforce. On the other hand, a factory emitting smoke is a negative externalty.