Question

How do I know which determinants of elasticity of demand is affected? Is that based on individual subjectivity or is there a right or wrong choice? e. g. Fruit mixer versus dishwasher. I could use “luxurious good” as a determinant for dishwasher (elastic) when compared to fruit mixer (inelastic) according to the Chegg expert.

My question, can I also use the determinant "portion of budget" because I think a dishwasher has a larger "portion of budget" (elastic), where fruit mixer has a smaller portion (inelastic)?

2. According to Chegg expert, when comparing “car versus bus,” then car is elastic and bus is inelastic because a car is a luxury good and bus is a basic. How about when comparing “RV versus an automobile”? I think RV is a luxury goods and a car is a necessity or? Can I here argue that a RV has a “larger portion of budget” and is, therefore, elastic compared to a car which has a "smaller portion of budget" (inelastic)?

Answer 1

The budget constrain of a consumer also influence the demand for goods. The goods on which the consumers spent a larger portion of income have elastic demand while the goods on which a consumer spends a smaller portion of income is inelastic. The RV has relatively elastic demand since large portion of consumer budget goes on it and car has relatively less elastic demand as small portion of income spend on it.

But this scenario changes when we compare the relative necessity of goods. A good may be necessary in certain circumstances even though the consumer spent a larger portion of income on it. In such circumstances the demand is inelastic.   The necessity depends upon the postponement of consumption. If consumption can be postponed the goods will have elastic demand even if small amount is spent on the commodity and if its consumption cannot be postponed, it is necessary even if larger amount is spent on the commodity.

The luxury and necessaries are classified not on the basis of money spent, but on the basis of relative intensity of use. The pace maker is highly costly and it cost around $4200 but a Sorbitrate (tablet given for heart patient) cost only below $1 for 50 tablets. Both are necessary for a hear patient and its use cannot be postponed. Thus when we consider the intensity or necessity, the income spent on the goods is irrelevant.

The intensity in use is psychological and RV may be necessary goods to those who cannot postpone its consumption even if larger proportion of consumer budget goes on it. A car may be a luxury goods to those who use public bus for travel irrespective of small portion of income spent.

In short, among the determinants of demand, the postponement of use is more important than the proportion of income spent on the commodity. If postponement of use is possible the demand will be elastic irrespective of small portion of income spend on a commodity and if postponement of use is not possible the demand will be inelastic contrary to large portion of income is spent on the commodity.

Thus among the determinants of elasticity of demand like postponement of use and proportion of income spent, the postponement of use exerts larger influence on the demand elasticity than the proportion of income.