Question

Discuss and apply the concept of elasticity to a boycott on a rubber manufacturing company.

Answer 1

The elasticity concept states the amount which demand will change for a product in response to a change in prices. In this case a boycott on this company will mean that demand for the product manufactured by that company will stop totally. Thus no matter how much price changes the demand for the product will not change. The elasticity of demand will thus always be 0 and the demand curve for that companys product will be horizontal at 0. In turn this will also make the raw materials of the companys product demand inelastic and so the demand curve will be very steep for such products if not vertical. Over time the supply curve of this product will also be effected and supply will also not change much as price changes and so the supply curve will be vertical. Thus the boycotting reduces the demand and supply of the product.