Which good has more of an elastic demand? Explain. • Price of all toothpaste brands or...

Which good has more of an elastic demand? Explain.

• Price of all toothpaste brands or prices of all extra safety feautures in vehicles?

• Price of cigarettes or price of ice cream?

Expert Solution

Elastic demand is when degree of responsiveness of quantity demanded for a commodity demnded is relatively more than the degree of change in price. Ex: A 20 % fall in price of good X leads to a 50 % rise in its demand. The elasticity value is greater than 1 in such cases.

Price of all toothpaste brands or prices of all extra safety feautures in vehicles?

The proportion of income spent on toothpaste is much less that that spent on extra safety feautures in vehicles. As a result the demand will be more elastic for extra safety feautures in vehicles. Extra safety features imply an addition to the existing basic features so are also not an absolute necessity and thus elastic in nature in terms of demand. Also since toothpaste is a necessity and has very low close substitutes its demand cannot fluctuate with change in price and hence it will have relatively inelastic demand.

Price of cigarettes or price of ice cream?

Cigarettes are usually consumed habitually (for such people it is a necessity) or for those who smoke ocassionally too, there are not many substitutes available. As a result for both reasons, the demand for cigarettes is relatively inelastic. As opposed to cigarettes, ice creams have more elastic demand because- they are not necessities, there are various other substitutes for a cold dessert and ice cream consumption can be postponed too.

Rahul Sunny answered 2 years ago

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