Question

Explain two of your consumption experiences that illustrate the concepts of price elasticity of demands and income elasticity. In addition, discuss the mechanism of how the factors that affect the elasticity worked.

Answer 1

I consume Salt.The price of salt increased, my demand remain unchanged means it is highly inelastic.It is only a small % of income that I purchase it for.The factor that affects price elasticity substitutes available. As salt has no substitutes available therefore it is price inelastic. Salt is also income inelastic as if my income will double I will not double my salt consumption.

Kit Kat chocolate bar.My price elasticity for this product is highly elastic as If Kit Kats price increase, I will switch to alternative types of a chocolate bar. As substitutes are available it is price elastic. It is also income elastic. If my income increases or decreases I will increase or decrease my Kit Kat chocolate consumption accordingly.