Question

Compare and contrast the price elasticity of supply and also price elasticity of demand.

What is an example of a good or service you buy where your demand is price elastic, so its price is important to your decision to buy it or not?

Also define income elasticity and how it distinguishes between normal and inferior goods and please give an example of a normal and an inferior good.

Answer 1

Answer : Difference between price Elasticity of demand as price Elasticity of Supply are :

• Price Elasticity of demand means degree of responsiveness in which price has directly influenced Quantity demanded. It means that percentage Change in price resulant Change in Quantity demanded.
• Price Elasticity of Supply means degree of responsiveness in which price has directly influenced Quantity Supplied . It means percentage change in price resultant change in Quantity demanded.

Furniture is an example of the good which is price elastic.

Price plays an important factor in determining the buying of the product because price level affected the quantity demanded of the product into the market. The price has directly influenced the product.

Define Income elasticity of demand:

Income elasticity of demand is degree of responsiveness of the Quantity demanded for goods and services with change in an income.

In case of normal good, as income increases Quantity demanded also increases. In this case Income elasticity is positive.Example : Normal good such as consumer good .

In case of inferior good as income increases Quantity demanded also decreases. Now as income increases Quantity demanded also decreases. In case of Bajra or inferior product.