Question

What are two examples of inelastic and elastic goods that you have recently purchased or not purchased. Please relate your examples to the characteristics of elasticity.

Answer 1

Inelastic goods.
1) Gasoline - I purchased gasoline for $2.00 a gallon six months ago
and recently the price has become $2.50 a gallon. My consumption of
gasoline for each month now compared to six months ago remains the same even though the price of gasoline
has risen.
% change in price of gasoline = 25%.
% change in quantity demanded for gasoline = 0%.
In other words, a one percent change in the price of gasoline has resulted in
a less than one percent change in the quantity demanded of gasoline.
2) Pasta (food item) - I purchased a packet of pasta for $10 six months ago. Now
the price of pasta has risen to $12. There has been a 20% increase in the price of pasta, and my
consumption has changed. I used to buy 6 packets of pasta for each month six
months ago and I now buy five packets of pasta for each month. (consumption has dropped 17%)
A 1% increase in the price of pasta is causing a less than 1% decrease in the quantity
demanded for pasta.
Elastic goods.
1) Cable TV - My cable TV provider increased the price of the cable TV services
by 20%. 50% of the consumers in my locality stopped their subscription for cable TV.
Elasticity of demand = % change in quantity demanded/% change in price.
Elasticity of demand = .50/.20
Elasticity of demand = 2.5.
A 1% change in the price of cable TV is producing a more than 1% change in quantity demanded for
cable TV.
2) BMW car - The makers of BMW cars increased the price of a BMW Sedan by 15%.
The quantity demanded for BMW Sedans fell by 55%.
I was one of the consumers who chose not to buy the Sedan.
Elasticity of demand = .55/.15
Elasticity of demand = 3.67.
A 1% change in the price of a BMW Sedan is producing a more than 1% change in quantity demanded for
the BMW Sedan.