Question

1. Please list and discuss in detail the six forces that determine whether a Demand curve is price elastic, or price inelastic.

What does it mean for a Demand curve to be price elastic, exactly?

What happens when the sellers raise the price of a product by ten percent on a demand curve that is price elastic?  

2. Please list and describe a product or a service that is new and original--- not discussed in the Lectures or videos, and not eyeglasses. Is the demand for your product or service price elastic? Or price inelastic?

Why?

How do the six forces discussed in #1 apply to the product or service that you have chosen to discuss? In your example, what would happen if the seller or sellers raised the price of this product or service by 10%? Why?

If the seller or sellers of the product or service you have chosen to discuss in question #2 wished to raise profits, what actions could they take?

Why?

Answer 1

Six Forces of elasticity / inelasticity of demand

1.) Nature of a commodity - If the good is a necessity good like the insulin injection then it's demand would be less elastic , which means price elasticity of demand woild be inelastic , in the other words even if the price of the commodity changes there will less change in the quantity demanded. If the product would be a luxury good like vintage car then its demand would be more elastic which means there is more change in quantity demanded in comparison to change in price , people will purchase less of it.

2.) Subsitution effect - If the product is a unique product and is limited and there is no other subsitutes od yhis product like the medicine of blood pressure , then iys demand would be more inelastic which means change in price would have less effect on change in quantity demanded , on the otherhand if the product like tea which has large alternatives will have more elastic demand , i.e. the change in its quantity demanded will become more if its price increases people will go less for it.

3.) Time period - Duration alao affects the elasticity of demand. In the long run goods have more elastic demand because people can find other alternativea in the long run , whereas in the short run demand ia more inelastic.

4.) Income effect - People with high income tend to have less elastic that is inelastic demand , they do not get affected by the change in price much on the other side people with low income group have more elastic demand that changes with the change in the price of the goods.

5.) Uses of a good - Goods which have multiple uses like milk which can be used in making curd , paneer and cream then its demand will be more elastic in nature. But if the commodity is used for less number of things like mobile phone then its demand will be more inelastic because change in its price will affect the customers' quantity demanded.

6.) Habits of consumers - The goods which are more in habit of consumers like tobacco will have inelastic demand , because even if their price changes their quanity demanded will not be changed more and people will still go for these products but if the product is not in habit then its demand would be more elastic.

PRICE ELASTIC DEMAND CURVE

Price elastic demand curve means that change in price would lead to great change in quantity demanded in response. It would affect the quantity demanded very much and there will be greater change in quantity.

IF a seller raises price by 10%

If a seller raises price by 10 percent then the price elastic demand curve will shift to left which means that consumer will go for less quantity of that product and will try to look for more cheaper alternatives.

NEW PRODUCT NOT BEING DISCUSSED ANYWHERE

Pillow

The demand for pillow would be price inelastic because if the price of pillow changes then its quantity demanded will not be changed because there are no other alternatives of pillows.

1.) Pillow is a necessity good so its demand would be inelastic in this manner because even if its price increase then people will go for it.

2.) Pillow will have elastic demand in case of substitution because people can find other alternatives rather than this.

3.) In time period pillows will have elastic demand and people can find other things to subsitute them in the longs run but in the short run their demand would be inelastic.

4.) For the high income groups the demand for pillow would always be inelastic because they can afford it buy for the low income groups demand for pillow would be elastic.

5.) In the case of uses , pillow's demand would be inelastic because they are not used for multiple uses but just for sleeping comfort.

6.) In the case of habit if the person is habitual of pillow and can't sleep without it then its demand would be inelastic that is change in price of pillow would not affect the change in quanity for that person and vice versa for non habitual person.

IF the seller wish to increase the profits :

Then seller would have increased the price of the pillows as the demand for pillows is inelastic people would go for it no matter how much change in the price.