Pricing Power

And finance Allah Shmoop What is elastic versus in elastic

demand Okay well here's your underwear band I think the

bane of wedgies super wedgies atomic wedgies and over the

head mega glop wedgies all around the globe Well what

do they all have in common Stretchy nous The band

stretches and moves and gives goodness Well think about the

elastic as representing the marketplace for a paperback copy of

Moby Dick It's the same new paperback copy Freshly minted

with that you know new book smell It's the same

product whether you bite it Amazon or Barnes and Noble

or anywhere else for both people you know who shop

anywhere else and or Barnes and Noble Or at walmart

dot com which has thirty for more buyers than Barnes

and Noble So yeah that's the second place winner in

the book war saga Well Moby Dick here we go

Yeah same total commodity product and lots of sellers of

it So the volumes sold depending almost entirely on price

rather than well if the price of that book drops

like two percent while you just buy it wherever wherever

it's sold cheaper right total commodity So the curves move

around like elastic A buyer will go to the area

of least resistance price resistance And yeah it's like you

know what happens in that atomic super wedgie thing So

if elastic means no pricing power of the cellar and

likely very low margins for the cellar and a world

where the buyer has all the power than what in

elastic All right well it's when you try to do

an atomic wedgie on some dude wearing steel underwear like

you know this guy sirloin of beef Well then it

doesn't move The material is in elastic An elastic would

be the sole remaining copy of Moby Dick signed by

Melville himself and still with a little whale blubber oil

on the manuscript cover there There's only one copy in

the world and hundreds of billionaires all around the world

who read or maybe just care about important literature would

love that copy Could they sell it for fifty bucks

A thousand one hundred thousand A million shore Probably Sure

sure sure All the power then is with the one

seller of that product who can charge almost anything they

want when they go to sell it So think of

any elastic demand is being things you can't live without

Like that last drink of water fore a parched human

traveller in the desert You know prices go up or

down like this curve or line thing here and it

won't matter Buyers will pay and sellers will reap the

powered rewards of any elasticity Pull on a rubber band

for a while and it'll move It'll adjust your pressure

and if you crinkle up a thousand of these bad

boys and melt him to gather well they'll bounce for

a long time I think of them as being elastic

They move a lot just like markets Okay so let's

think about oil What about that Yeah highly elastic when

there's lots of supply While the highly competitive industry will

offer a gallon of gas for less and less and

less and less until it has sold out all the

marginal gas it can supply and still at least break

even All things considered so typically highly elastic industry sell

commodities where there's no difference in buying a gallon of

gas from Shell or Chevron or BP Or we've got

gas dot com or whoever So now go to the

other end of the street and try pulling on this

two by four Yeah you can pull all day long

at eight going nowhere unless you're Superman It is in

elastic Any elastic demand revolves around things that are irreplaceable

like those thirty five acres on the beach in Malibu

only exist in one place and a property like that

comes up for sale maybe once in a decade So

it carries any elasticity in its sales process in that

the seller can put almost any price at once on

the property and will likely get it The same applies

to rare vintage Ferraris The signed football used to score

the winning touchdown in the Super Bowl or elite plastic

surgeons for wealthy widows of billionaires Economists being economy you

know I want to make sure that elasticity is something

they can graph So the equation for elasticity goes something

like this percent change in quantity to manage over percent

change in the price There we go Well Q represents

the quantity and P represents the price There See very

cleverly named Take two points the quantity at point A

and then the quantity at point B like note those

then check the price at both of those points and

you figure out the percentage change and we'll just get

the ratio Well the answer gives you a measure of

the products elasticity Any number bigger than one is considered

to be elastic meaning It's kind of more commodity ish

The bigger the number the more elastic it is Like

water A normal water in any normal city is pretty

elastic Figures less than one answered like a point five

point o three Two would be any elastic like the

smaller the figure the more any elastic the more rare

Ferrari buyer like it is Well the math may seem

a tad complicated here but when graphed out well it

makes a lot of sense Visually the concepts are easy

to conceive So check out these curves Yeah not very

curvy Other factors besides simple supply and demand can play

into whether prices are elastic or any elastic Grover Bio

Genetics Inc provides a drug that cures a certain kind

of tale Cancer In dogs The drug is relatively simple

The manufacture Any moderately competent lab could produce it But

it's the consumer who feels the verticality of the demand

curves that is a dog owner whose pooch is suffering

from painful tale cancer will pay nearly anything to get

the drug needed to keep their dog alive and licking

their face will demand for the drug is very any

elastic Then right Rover Bio genetics can jack up the

price to whatever they want a jacket to and people

will pay it well The high price of the drug

has nothing to do with the manufacturing cost Remember the

drug is relatively easy to make It has to do

with the elasticity of the demand for it Biogenetic skin

charged a high price basically because they can welcome to

the world of supply demand economics in the elasticity Yeah

other complications can come into effect as well For instance

elasticity can change on one demand curves That is to

say different forces come into play in each curve area

when determining the demand elasticity Varying considerations impact consumers at

different points like you find out that you can get

a cheap generic equivalent of the tail cancer drug in

Mexico So your pack up little snookums and head down

to Tijuana The instructions on the drugs say to give

the pop two pills orally and then make sure to

give her plenty of water But the guy's front desk

warned you that they've had some plumbing issues lately and

you might not want to drink the tap water So

you have to feed snookums bottled water Teo you know

take with her pills Now the minibar has bottled water

It cost nine dollars for this little thing Nine dollars

Can you believe it Yes Nine You don't want to

leave Snow comes alone in the hotel room So you're

tempted Teo Just pay the high minibar price But if

you just leave the room for a few minutes while

you khun go to the hotel bar You know they

sell bottled water for still a whopping six dollars each

but at least he saved three bucks And then if

you're willing to take a longer trip while you can

you know uber toe walmart to Mexico and by water

in bulk for less than a dollar a bottle So

like why wouldn't you do that Yeah because well we're

all lazy but snow comes Yeah let's give her a 00:07:24.846 --> [endTime] little kiss In the world