Deeper down the economic rabbit hole exists the concepts of elasticity. It revolves around the reaction to the price changes (McConnell, Brue, & Flynn, 2015). It varies from supply to demand to income. However, all three have a similar formula to calculate the price elasticity of each. Of course, as the title suggests, the production cost is touched upon as it is the cost when manufacturing a product (Production Cost, n.d.). Knowing this information about elasticity and production cost gives insight into the world of production as well as the world of marketing with topics of supply and demand.
Elasticity comes from the measurements of the changes in price, and it happens to both the supply and demand (McConnell, Brue, & Flynn, 2015). When
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It measures based on the income of the consumers and how they respond to goods by buying more or less (McConnell, Brue, & Flynn, 2015). The formula for it is like the formulas for the supply and demand elasticities before it, which is the percentage change in the demand divided by the change in income. For example, consider someone who is an avid music enthusiast. If that person has their income rising from 5 percent to 8 percent to the demand for vinyl records rises from say, 10% to 19% then it means the percentage of income and quantity demanded went from 60% to 90%, respectively. Dividing the 90% by the 60% would give the income elasticity of 1.5%.
The last, but not least topic to discuss is the topic of production cost as it gets mentioned, but not discussed in as much detail as it should. As mentioned previously, it involves the creation of goods, including raw materials (Production Cost, n.d.). Within the world of production, the costs split into two groups: direct and indirect. The former only applies to a specific product, an example being sales commissions (Bragg, Examples of direct costs, 2014). On the other hand, the latter can apply to multiple products such as expenses, according to Steven Bragg