Question

1. Describe in a paragraph, What is price elasticity?

2. How does Moore’s Law relate to this concept?

3. What’s special about falling chip prices compared to price drops for products like clothing or food?

Answer 1

Price elasticity refers to the term which describes how the demand for a product or service reacts to its own price. As we all know because the Law of Demand says that the price would go up, the demand would fall and vice versa. Thus, the price elasticity tells us how much of the demand is being changed because of any positive or negative change in the price of the product.

This concept of Price elasticity is related to Moore's law because as the chip making industry started its development, it continued to provide better and improved technology which is cheaper, additionally when the technology which is high priced begins to drop in the price of the chip but increase in the demand elasticity kicked in for the chips.

The difference we can see with chips and price elasticity of them and normal clothes and food is that when the prices of the chips falls, it makes the technology affordable for the people and thus more people buy it. But when the prices of foods and clothes drop, normal people don't tend to buy more of it as it becomes an inferior good and are substituted for other elements.