Price Elasticity Essay Example | Topics and Well Written Essays - 500 words

Price Elasticity - Essay Example This is because a sophisticated machine such as a CD needs proper parts to function accurately. Much is dependant on the installment of proper parts into a CD and unless each of them lives up to industry standards the end product (i.e. the CD) will not be permitted to be released in the market. Given the significance of the raw materials therefore no CD company can possibly compromise on them just in order to bring their prices down. Cheaper parts, most know, may bring down prices but ultimately prove a nightmare for consumers. Software corruption and malfunction can result of a simple cut down on budget. Since most CD companies are reluctant to take such risk and thereby ruin their reputation amongst buyers they (usually) stick to being safe than sorry and thereby choose to use the more expensive parts if they have to. (Lamb, 2004) Given how dependant the CD industry is on both the supply of building materials as well as the demand of the consumers we find that the price elasticity of both demand and supply is rather high on the CD industry. All private markets generate what are called 'externalities' or 'spillovers'. Such externalities include any sort of charge or benefit that the price of the merchandise or services sold by the market does not include.