4) The estimated price elasticities of demand for certain products are listed in the table. Indicate...

4) The estimated price elasticities of demand for certain products are listed in the table. Indicate if Product B would have a more elastic or less elastic demand and why.

Product A	Estimated Elasticity for Product A	Product B	Is Estimated Elasticity for Product B More Elastic or Less Elastic than for Product A?
Beer	-0.29	Samuel Adams Boston Lager
Chicken	-0.37	Organically raised chicken
Cocaine	-0.28	Illegal narcotics
Cigarettes	-0.25	Marlboro Lights

Expert Solution

Beer = the demand for Samuel, Adams, Boston, and Lager will be less elastic than beer i.e. inelastic. Beer is a product, whereas Samuels, Adams etc are specific brands who don't have any close substitute and sam smith, is a sam smith and those who are specific about their brand choice will choose that beer only.

The chicken = Organic chicken will be less elastic i.e. inelastic. People have specific demand for these chickens those who need organic chicken will ask for the same variety even after an increase or decrease in the price which makes them more inelastic.

Cocaine = Illegal drugs will more elastic. Cocaine is specific illegal drugs are not. Illegal drugs can have many substitutes and people will easily switch between different illegal drugs making the price more elastic.

Cigarettes = Marlboro Light is again specific product and people who need it will demand it at any increase or decrease in price making it more inelastic.

(Elasticity of demand also depends on the availability of substitutes and consumer preference, a brand loyalty of people for a particular product make that product more inelastic when compared to generics. )

Rahul Sunny answered 1 year ago

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