pacmandefense

one other thinking process..

Consider this hypothetical analogy:

Your monthly budget(spending) has only two items.. amount u spend on subway and amount u spend on movies. And assume that you have limited budget of $100 per month. you can deviate a bit from that $100 mark.. but not much.

Now, assume that your spending on subs is 95/100 ( 19 subs per month @ $5 per sub) .. spending on movies 5/100 (one movie per month @ $5 per movie).

Now, say that price of sub increases to $6 (20% change in price)........... it's gonna hurt your budget a lot. You try to seek all sorts of measures to minimize the consumption of subs. Either u shift to other food or u decrease the number of subs.. what ever way u choose.. you are gonna take out large no: of subs from ur monthly budget.

A similar 20% increase movie tickets won't be having much effect. You probably won't even notice about that.

bottom line is.. higher the proportion a good occupies your budget, higher is it's sensitivity for change in price i.e. higher the elasticity.

Now, apply this analogy to ur company budget.. replace subs with labor and movies with tech stuff. In labor intensive companies (where you spend a lot on labor) even a small increase in price would cause lots of layoffs and vice versa.. just like u did with ur subs..

I hope this helps.

Good Luck.