For each pair of goods, decide which would have greater price elastic demand: 1. Cheerios or...

For each pair of goods, decide which would have greater price elastic demand:

1. Cheerios or breakfast cereal?

2. Milk or soda?

3. Salt or rent for your house?

Expert Solution

The price elasticity of demand is the degree of responsiveness of a consumer to the change in price. If the elasticity is

less than 1 it is price elastic

equal to 1 unitary price elastic

more than 1 it is price inelastic

1.Cheerios or breakfast cereal?

Breakfast cereal is a broader category compared to Cheerios. Cheerios will have more price elastic as compared to the breakfast cereal. This is because Cheerios have more substitutes compared to the cereal. So if the price of Cheerios increases consumers can switch to cheaper substitutes.

2. Milk or soda?

The demand for soda is more price elastic compared to milk. This is because milk does not have very close substitutes as compared to Soda. Milk has a relatively inelastic demand compared to the soda.

3. Salt or rent for your house?

The rent for houses forms a large part of the budget for the consumer. Hence, it is more price elastic. The demand for salt is price inelastic since it is a necessity and also quite inexpensive.

Rahul Sunny answered 6 months ago

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