Question

for each of the following, which good would you expect to have more elastic demand and WHY? A) Tickets to Disneyland or Healthcare B) Starbucks Coffee or Coffee in general C) Airline Flights during the next year or Airline Flights during the next 3 years D) Milk or Chocolate Milk

Answer 1

(A) Tickets to Disneyland would have more elastic demand than Healthcare. This is because a trip to Disneyland is a leisure activity that can be postponed if say the ticket prices are too high. Healthcare, on the other hand, is a necessity that can't be postponed or substituted and hence, has inelastic demand.

(B) Starbucks Coffee has more elastic demand than coffee in general. A person who is accustomed to drinking coffee would want coffee everyday and hence the demand for coffee is inelastic. The demand for Starbucks coffee specifically would have elastic demand as there are substitutes available, such as coffee from a different store or homemade coffee.

(C) Airline flights during the next 3 years have more elastic demand than airline flights during the next year. The time period creates the difference here. Over s 3 year time period, all factors such as price, preferences etc. are more flexible than during just the next year. Hence, flights during the next 3 years have more elastic demand.

(D) Milk has more elastic demand than chocolate milk. Milk as a good has several uses such as, to drink plain, cook, make cheese, yogurt etc. If the price of milk was to increase, consumers would purchase less and hence use it only for the more important purposes, i.e. use it in less number of ways. Chocolate milk, on the other hand, has only one specific use and doesn't have close substitutes (the closest would be a differently flavoured milk, which isn't always a good substitute). Thus, chocolate milk has more inelastic demand.