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

- Price elasticity of demand refers to the degree of change in the consumption due to change in the price.

- Income elasticity refers to the change in the consumption behavior due to change in the income of the consumer.

With reference to my experience, I switched from maggie to yiepee noodles when Maggie changed its price from ₹10 to ₹12. However the rate change was just ₹2 but what changed my mind was that I was too lazy to get extra 2 rs coin. And this happened to everyone because everybody has 10₹ but it requires efforts to get extra 2 rs so started buying yiepee noodles which was available for 10₹ only. This was price elasticity effect. However change in price was not much but this was different factor that changed my mind when price changed.

In the second case which is income elasticity of demand when I was a student and not earning I used to buy local clothes but After getting job, I had money to spend for branded clothes. So change in income from pocket money to salary my consumption behavior changed.