Question

Explain how elasticity affects different actors in differing market sectors. Use real world examples and graphs to support your description.

Answer 1

I will start by explaining what is elasticity first, and ill provide graphs for some which are repititive and examples for ALL>

Elasticity is the affect of change in demand due to per unit change in price of any commodity in the market.

1. The number of close substitutes in the market: The more the number of substitutes the more elastic the demand will be because you will be able to switch in the market. hence like air travel and train travel, there are so many airlines present that you can switch back and forth the demand of whatever suits the best price. Fig 2 is the graph.
2. The cost of switching from one market to another, if the cost of switchig is very high, then the elasticity in this case will be very low and demand will be inelastic in this case. For example of a buying an iphone, switcing iphone over another iphone is very expensive and Fig 1 explains it.
3. The good being a luxury or a necessity : Necessaity like a salt will have an inelastic demand(fig1) whereas a luxury will have an elastic(fig2)demand in the market like a TV, fridge.
4. The proportion of a consumers income allocated to spending on the good and there fore the products that take up a higher percentage of income tend to have a more elastic(fig2) demand like buying car.
5. The time period allowed following a price change, where demand is more price elastic(fig2), then in that case the longer that the consumer have to respond to a price change. they have more time to search for cheaper substitues in that case like in the electronic market and switch the spending.
6. habitual consuption: in case of habitual consumption, the good will be less elastic and will not be subjected to change much even if the prices go up or fall. like for an alcoholic, consumption of alcohol will not affect him. (fig1)
7. Peak and off peak demand - the demand will be more inelastic(fig1) in peak time and more elastic(fig2) in off peak times especially this takes place while booking an Uber when due to traffic you will prefer walking than booking an Uber.
8. The length and breadth of a definition of a good service where the demand for petrol or meat is often inelastic(fig1) but a speacific kind of a brand will be elastic(fig2) like Chipotle