Question

For each of the following, state whether you believe the price elasticity of demand is elastic or inelastic, and then in one sentence explain why. a. Insulin to a diabetic b. A box of Honey Nut Cheerios c. A pair of athletic shoe laces d. A hot water heater to someone whose current hot water heater is broken e. An energy-efficient hot water heater to someone just shopping around

Answer 1

Price elasticity of demand

a. Insulin to a diabetic

Demand for insulin to a diabetic is inelastic

(What ever the price of insulin, the diabetic will pay for it as it is his need and there are no close substitutes available for it. So price will not affect the demand for insulin)

b. A box of honey nut Cheerios

Demand for a box of honey nut Cheerios will be elastic

(The demand for any specific type of cereal is elastic as there are many substitutes available for them, so a change in price will bring about a change in quantity demanded)

c. A pair of athletic shoe laces

Demand is inelastic

(Even if the price of shoe laces increases the demand for them will not decrease and vice versa, so whatever the price may be people will buy shoe laces when they need without paying attention towards the price)

d. A hot water heater to someone whose current hot water is broken

Demand will be inelastic

(As his current hot water heater is broken he is keen on buying another one, so he will buy it at whatever price available, thr price will not affcet his demand)

e. An energry efficient hot water heater to someone just shopping around

Demand will be elastic

( The person is just shopping around so a fall in price may induce him to buy it, or an increase in price may lead him to not buy the product)