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

HERE I AM TAKING THE 2 EXAMPLES THAT ARE OF ONION AND GARMENTS TO ILLUSTRATE THE CONCEPTS OF PRICE ELASTICITY OF DEMAND AND INCOME ELASTICITY.

PRICE ELASTICITY OF DEMAND IS THE RESONSIVENESS OF QUANTITY DEMANDED OF A COMMODITY WITH RESPECT TO CHANGE IN PRICE, CETIRUS PARIBUS.

INCOME ELASTICITY ON THE OTHER HAND IS RESPONSIVENESS OF QUANTITY DEMANDED OF A COMMODITY WITH RESPECT TO CHANGE IN INCOME OF CONSUMER, CETIRUS PARIBUS.

SO IN CASE OF ONION:

• PRICE ELASTICITY OF DEMAND: IF THE MARKET PRICE OF ONION CHANGES AND SUPPOSINGLY  THE PRICE INCREASES THEN ACCORDING TO THE LAW OF DEMAND WE WILL SEE INVERSE OR NEGATIVE RELATION BETWEEN QUANTITY DEMANDED OF ONIONS LEADING TO DECREASE IN QUANTITY DEMANDED AND VICE-VERSA. THIS RESPONSE OF CHANGE IN QUANTITY DEMANDED OF ONION DUE TO CHANGE IN PRICE OF ONION SHOWS PRICE ELASTICITY OF DEMAND UNDER DEMAND BEING ELASTIC DEMAND. NOW, IF THE QUANTITY DEMANDED WOULD HAVE REMAINED THE SAME THEN WE WOULD HAVE SAID DEMAND OF ONION TO BE INELASTIC.
• INCOME ELASTICITY: IF THE INCOME OF THE CHANGES AND SUPPOSINGLY IT INCREASES THEN ONION BEING A NORMAL GOOD THE CONSUMER WILL INCREASE CONSUMPTION OF ONION SHOWING POSITIVE RELATION BETWEEN INCOME OF A CONSUMER AND QUANTITY DEMANDED OF ONIONS AND VICE-VERSA. THIS RESPONSE OF CHANGE IN QUANTITY DEMANDED OF ONION DUE TO CHANGE IN INCOME OF A CONSUMER DEPICTS INCOME ELASTICITY OF DEMAND UNDER DEMAND BEING ELASTIC DEMAND. NOW, IF THE QUANTITY DEMANDED WOULD HAVE REMAINED THE SAME THEN WE WOULD HAVE SAID DEMAND OF ONION TO BE INELASTIC.

IN CASE OF GARMENTS:

• PRICE ELASTICITY OF DEMAND: IF THE MARKET PRICE OF GARMENTS CHANGES AND SUPPOSINGLY  THE PRICE INCREASES THEN ACCORDING TO THE LAW OF DEMAND WE WILL SEE INVERSE OR NEGATIVE RELATION BETWEEN QUANTITY DEMANDED OF GARMENTS LEADING TO DECREASE IN QUANTITY DEMANDED AND VICE-VERSA. THIS RESPONSE OF CHANGE IN QUANTITY DEMANDED OF GARMENTS DUE TO CHANGE IN PRICE OF GARMENTS SHOWS PRICE ELASTICITY OF DEMAND UNDER DEMAND BEING ELASTIC DEMAND. NOW, IF THE QUANTITY DEMANDED WOULD HAVE REMAINED THE SAME THEN WE WOULD HAVE SAID DEMAND OF GARMENTS TO BE INELASTIC.
• INCOME ELASTICITY: IF THE INCOME OF THE CHANGES AND SUPPOSINGLY IT INCREASES THEN DUE TO INCREASED INCOME THE CONSUMER'S DISPOSABLE INCOME WILL INCREASE AND THE CONSUMER WILL INCREASE ITS SPENDING ON CLOTHING SHOWING POSITIVE RELATION BETWEEN INCOME OF A CONSUMER AND QUANTITY DEMANDED OF GARMENTS AND VICE-VERSA. THIS RESPONSE OF CHANGE IN QUANTITY DEMANDED OF GARMENTS DUE TO CHANGE IN INCOME OF A CONSUMER SHOWS INCOME ELASTICITY OF DEMAND UNDER DEMAND BEING ELASTIC DEMAND. NOW, IF THE QUANTITY DEMANDED WOULD HAVE REMAINED THE SAME THEN WE WOULD HAVE SAID DEMAND OF GARMENTS TO BE INELASTIC.