Question

In: Economics

Identify an elastic and inelastic good/service that you have might have consumed or not. Explain the...

Identify an elastic and inelastic good/service that you have might have consumed or not. Explain the goods that you picked. Please relate your answers to the characteristics of elasticity.

Solutions

Expert Solution

Price elasticity of demand is the ratio of percentage change in QD to percentage change in its price.

If the result is more than 1, the good is price elastic.

If the result is less than 1, the good is price inelastic.

Elastic good: Smartphone

This is a normal good, since demand of the product increases if income rises or price fall. A slight change in price creates huge impact on demand, making its demand elastic – such as 2% fall in price increases 3% demand; therefore, price elasticity of demand (3%/-2% =) -1.5 (elastic by ignoring the negative sign).

Inelastic good: Cigarette   

The use of this good depends on consumer’s habit and usually habit cannot be changed although there is price rise. Therefore, it becomes inelastic – a change in price cannot impact much on its quantity demanded. Suppose a 2% price rise decreases only 1% of demand; therefore, price elasticity of demand (-1%/2% =) -0.5 (inelastic by ignoring the negative sign).


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