Question

In general, the price elasticity of demand for a product will be greater (a) the larger the number of close substitutes, (b) the greater the share of budget an item takes, (c) the more the item is considered to be a luxury, and (d) the narrower the market is defined (for example, a specific brand name vs. an entire market). Costco (www.costco.com) posts its sales (discount) items. Select at least 5 sales items, and evaluate the price elasticity of demand for each item.

Answer 1

b)The greater the share of budget an item takes .

If a product takes a larger share of a consumer's budget, even a small increase in price may make the product expensive to buyers.Therefore the larger the share of an item in one's budget,the more price elastic the demand will be.

Five products that are discounted in Costco and are  cheap are Organic peanut butter,organic maple syrup,Rotiesserie chicken,Nutella,organic eggs.The demand for organic food products is elastic .Organic food sales have generated growth and sales increase.With high demand and less supply prices may rise but Costco makes efforts to sell at competitive prices.Demand for organic peanut butter,organic maple syrup,organic eggs are price elastic.Demand for Rotiesserie chicken is price inelastic as the preservative used is a controversial ingredient .Nutella is price inelastic as beyond the price there is no much difference with other spreads.