Question

For each of the following pairs of goods, which good would you expect to have more elastic demand and why? • Required textbooks or fictional novels [2 marks] • Allison Hinds music recordings or soca music recordings in general [2 marks] • Airfare during the next 4 months or airfare during the next 5 years [2 marks] • Fruit juice or water [2 marks]

Answer 1

As textbooks are necessary in order to pass in exam, demand for required textbooks have more inelastic demand compared to fictional novel which is a luxury good as people can switch to other genre if price of fictional novel increases.

We know that goods which are broadly defined tend to have more inelastic demand than those which is narrowly defined. Hence when price of Soca music recording changes, consumers cannot switch to other alternatives but when price of Allison Hinds music recordings increase, consumers can switch to some other singers. Hence demand for Allison Hinds music recordings is relatively more price elastic than demand for soca music recording in general.

We know that over longer period of time demand for a good or service becomes relatively more elastic as many substitutes become available during longer period of time. Hence Airfare during the next 5 years have relatively more elastic demand than airfare during the next 5 weeks.

Water is a necessity, hence demand for fruit juice have more elastic demand compared to demand for water as when price of fruit juice increases, consumers can easily substitute fruit juice with some other kind of drinks.