Is there an integral connection between friction in an economy and elasticity of demand? Why do...

Is there an integral connection between friction in an economy and elasticity of demand? Why do you believe there is, or why do you believe there is not? If there is a connection, what is it? Can we measure or specify the relationship? If yes, how do we do so?

Expert Solution

Friction in economy is like a lot of hurdle in economy like taxes etc. And it definatetly have a connection with elasticity of the demand. A friction led to higher price and this further lead to decrease in demand. Thus, indirectly it has an impact. A friction less economy is an ideal economy in which things like medical care, musical compositions and new ideas which were previously expensive are made little cheap. These are replaced with computerization within the "information economy" which have a tendency to slowly reduced the price. The transaction cost reduce to bare minimum.

Which the reduction in price the elasticity of demand is triggered and the quantity demanded changes according to that. It is a positive connection that both has.

Though I believe it cannot be measured as most of the frictions are qualitative. And a few which are quantitative will not give exact cost benefit analysis.

Rahul Sunny answered 2 years ago

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