Question

Price Elasticity In your own words explain price elasticity. Focus on explaining the difference between products that have elastic demand and those that have inelastic demand. What types of products typically have inelastic demand? Why? What types of products typically have elastic demand? Why? For the following products indicate if your demand for the product is elastic or inelastic and why. Having a car Home cable/internet service (all service providers have doubled their prices – elastic or inelastic?) College courses (all schools have doubled their prices – elastic or inelastic?) Cell phone service (all service providers have doubled their prices – elastic or inelastic?

Answer 1

Price Elasticity of demand is defined as that economic measure which indicates the change in the quantity demanded of any product in response to the change in the price of that product, keeping other things constant. Products having inelastic demand are those products whose quantity demanded remains static with the change in their prices i.e. their quantity demanded does not changes much as the price goes up or falls down, while as products having elastic demand are those products whose quantity demanded changes with the change in the prices of those products.

Products for which there are very few good substitutes present in the market have inelastic demand because there is no other option for the consumers to buy instead of those products and hence the price does not affects the quantity demanded of those products, whileas products for which there are large no. of substitutes present in the market have elastic demand because there are various other alternative goods in the market which the consumers can buy instead of these products and hence people demand less of these products when the prices rise.

Car home cable/ internet service is having an inelastic demand i.e. quantity demanded will not change if the service providers double the prices of this service because people always prefer of watch news or something else by the use of these services and hence are ready to give more prices for them.

College courses, nowadays, are having elastic demand beacuse if the schools double their price most of the students do not apply for the courses and prefer to do something else which indicates that when the prices double, the quantity demanded gets reduced, although the reduction is less.

Cell phone services are also having inelastic demand because if all the service providers double the prices of the cell phones, people still demand them i.e. the quantity demanded does not reduces with the increase in the prices of these cell phones.