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Micro Economics

            1) Elasticity is the measure of response of a consumer to the change of the price of an item. Elasticity is determined by five different factors. The number of substitutes being one the more substitutes of a good the more elastic that good is. The time period is another whereas the longer a consumer has to make a purchase the more time he can spend looking for the cheapest price. There is also the necessity of the good. Clothes for instance is inelastic but a handbag not being a necessity is elastic. Another factor is the importance of the good in one's budget, the more important such as food the more inelastic this factor corresponds with the necessity factor. The last factor is generalization. If you are researching a group like food vs. Kraft ® American cheese, this plays on the first factor of number of substitutes. There is no substitute for food but there is a vast amount of substitutes for Kraft ® American cheese. .
             There are four different types of elasticity. The first is the elasticity of demand or price elasticity. This type is the relative amount by the quantity demanded will change in response to a change of prices that goods are sold. Income elasticity is the response of quantity purchased to the change of an individual's income. Cross elasticity measures two goods that are either complementary such as electronic toys like "Leap Pad" to the sale of batteries or two substitute goods like Coke and Pepsi. The final type is elasticity of supply, which is the response of suppliers or producers to the change of prices that goods are sold.
             Elasticity is important because it is used by both the government and businesses as a decision making tool. The government uses elasticity to decided what to tax while businesses use it to judge weather they should raise or lower prices to increase revenue.
             3) The most important piece of information in the utility maximization process is marginal utility per unit because this measurement tells you how many a consumer can and most likely will purchase, as well as when marginal utility is zero is when the subject reaches maximum utility.


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