make a list of products which you think demand is price inelastic and price elastic, specify the reasons you may think relevant for your analysis
Answers
Refers to one of the most important factors of determining the price elasticity of demand.
In economics goods are classified into three categories, namely, necessities (or essential goods), comforts, and luxuries.
Generally, the demand L essential goods, such as salt, sugar, match boxes, and soap, is relatively inelastic (less than unity) or perfectly inelastic.
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This implies that consumers purchase the same quantity of these goods, regardless of increase or decrease in their prices. Moreover, the consumption of necessities cannot be postponed; therefore, the demand for necessities is inelastic. On the other hand, price elasticity of demand for luxury goods, such as car, air conditioners, and expensive jewellery, is highly elastic.
Any change in the prices of luxury goods cause a major a change in their demand. In addition, the price elasticity of demand for comforts, such as milk fan, and coolers, is equal to unity. Therefore, we can say that demand for comforts is more elastic as compared to necessities and less elastic than luxury goods. However, this statement is not always true as the demand for luxury goods may be elastic in lower and medium income groups, but can be inelastic in upper class.
Apart from this, goods are also grouped into durable and perishable goods. Durable goods, such as furniture car, and computer, are the goods that can be used number of times, while perishable goods, including eatables and cold drinks, have a single use. The price elasticity of demand for durable goods is more elastic as compared to perishable goods. The is because when the price of durable goods increases, consumers prefer to get the old ones repaired or replace them with pre-used ones.
ii. Availability of Substitutes:Influences the elasticity of demand to a larger extent. The main reason for change in the elasticity of demand with change in price of some goods is the availability of their competing substitutes. The larger the number of close substitutes of a good available in the market, greater the elasticity for that good. For example, tea and coffee are close substitutes.
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If the price of tea rises, consumers may curtail the consumption of tea and purchase coffee and versa. In such a case the demand for tea decreases, while demand for coffee increases. Therefore, the elasticity of demand for both of these goods would be higher. However, the demand for goods that do not have close substitutes, such as liquor, is inelastic, irrespective of increase or decrease in its price.
iii. Number of Uses of a Good:Helps in determining the price elasticity of a good. The demand for multi-use goods is more elastic as compared to single-use goods. When the price of a multi-use good decreases, consumers would increase its consumption. Therefore, the percentage change in the demand for multi-use goods is more with respect to percentage change in their prices.
For example, electricity can be used for a number of purposes, such as lighting, cooking, and various commercial and industrial purposes. If the price of electricity decreases, consumers may increase its usage for various other purposes.
Similarly, if the price of milk decreases, consumers may increase its consumption by using it for various purposes, such as making curd, butter, cream, and ghee. In such a case, the demand for milk would be highly elastic. On the contrary, if the price for these goods increases, there use would be restricted to urgent purposes only.
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Hope it helps!
Price inelastic is where the change of price of a commodity will not affect the rate at which the quantity of a product demanded, for example a change of the price of the matchbox will not affect the rate at which the matchbox is demanded, this is because it is an inferior goods. Price elastic is where the changes in the price of the commodity affects the rate of quantity demanded.