Topic 4: Ripple Effects and Elasticity

Aware of the ripple effect is extremely important since a simple change in a good or service can have an impact on many other aspects. The change of oil price influences other parts of the economy because oil is the material of many products and oil is the essential factor that we use in everyday life. Oil is the raw material in producing plastic, and plastic is everywhere in our daily life. So if the price of oil increases, the price of plastic might also increase. It will increase the cost of consumers, making them reduce their quantity demanded for anything involves with plastic. Other goods that have a ripple effect are critical things in our everyday life such as gas, water, and electric energy. Take water, specifically, for example. We need water every day: we drink it, use it when taking a shower and washing dishes. Once the price of water rises (either due to shortage, pollution, processing cost increase…etc.), the capability for us to afford it decreases. Cost of having meals in restaurants might rise because the money that pays for water washing dishes increase. The drinks the restaurants provide would also be more expensive. A single change affects everyone.