Question

1. Is the demand curve for the M&M chocolate ELASTIC or INELASTIC? Why?

2. Name 6 forces or factors that determine whether a demand curve is ELASTIC or INELASTIC, and please apply each of these 6 factors to the demand curve for the M&M chocolate.

Answer 1

1. Is the demand curve for the M&M chocolate ELASTIC or INELASTIC? Why?

Answer: Demand Curve for M&M Chocolate is ELASTIC.
As shown in the figure, when supply curve shifts from S₁ to S₂, equilibrium price increases from $3 to $4 and equilibrium quantity decreases from 40 units to 20 units. So there is an inverse relationship.
When there is a change in demand function (let's take technology), supply curve would shift right.

2. Name 6 forces or factors that determine whether a demand curve is ELASTIC or INELASTIC, and please apply each of these 6 factors to the demand curve for the M&M chocolate.

Answer: Factors affecting elasticity of demand are:
a) Availability of substitute goods.
b) Number of uses of product
c) Nature of goods
d) Proportion of income spent
e) Price of goods
f) Postponement of consumption

Since M&M chocolates manufactures chocolate, which have close substitute. Chocolates have number of uses like making chocolate cake and other food items. Price of chocolates are inversely proportional to quantity demanded. The consumption can also be postponed if price increases.