Question

In Module 6 we are covering the concept of Elasticity.

-Detailed examples of two goods in your life that have an elastic demand and two goods that have an inelastic demand.

-Explain your reasoning being sure to apply what you’ve learned about elasticity.

Answer 1

Demand for a good which is highly flexible with its price, consumer's income, price of close substitutes etc... are known as elastic demand. Almost all the goods that we see in our daily life are goods with elastic demand. Law of demand in Economics explains the price elasticity of a good. Ceteris Paribus, the demand for a good comes down when its price rises.

Goods with Elastic Demand

Example 1: A person would shift from coffee to tea if coffee becomes expensive assuming the person is not addicted to coffee (ceteris paribus). Therefore, the demand for coffee is elastic. If the person is a coffee addict and is not able to shift from coffee, he would continue to consume coffee. In that case, the demand for coffee is inelastic.

Example 2: Consider two cars with the exact same specifications being offered at the same price. A small change in price can cause to refuce the demand for that car. Here it is assumed that the people are not brand loyal.

Goods with Inelastic Demand

Demand for goods will be inelastic mainly due to unavailability of close substitutes. Example, Kerosene has it's own uses. There is no other close substitute that a common man would know to kerosene. Hence, fluctuations in price won't affect the demand for kerosene.

Another example would be the basic needs or healthcare needs. Normally, people will not consider price when it comes to getting their new born baby the adequate care from the hospitals during the initial days after birth. Generally, people don't look for price there but the service. But again that would be another factor to cause hike in demand for any service sector business.