Elasticity of demand, which are elastic and inelastic?
If there is a product or service that you absolutely need a finite amount of on a regular basis, it has an inelastic demand (for the most part). If it is a product or service you like or want often and prefer it more often, it has an elastic demand (most of the time). You will pay for your "necessities" regardless of price but you will not buy extra (inelastic demand or demand doesn't change with price changes). However, if you like tenderloin steak and the price comes down substantially, you will buy more. Hopefully, you can classify your products mentioned in your question after reading this explanation. Elasticity of demand means that you will buy more of something if the price change of the product is reduced and you will buy less if the price goes up. Inelastic means you will buy regardless of price because it is a necessity. Not all items or choices are clear choices buy relative to price and need.
Which items are elastic and which are inelastic?
Since we hardly notice a 1% change it would be clearer if you ask your self how much more/less you would buy if the price was half/double what it is to day. My answerer would be coffee-nearly the same amount-inelastic electric car- I would switch from a gas one if the price halved-elastic candy- I would not change the amount I bought but children would- elastic Pizza- I buy for a cheep meal - elastic T shirts- buy mostly because the are the cheapest tops-elastic
Is water supply elastic or inelastic?
About 15% of water is used for watering yards and washing cars. Therefore, that use is elastic. Yes, the other 85% of residential demand is inelastic. Farmers and industries use water, too. Most of their demand is inelastic. About 36 states may face some type of water shortage in the next 5 years. So 36 states have inelastic water resources. The other 14 states can get all the water they need and have elastic supply. Generally, demand is inelastic and supply is inelastic but remember that is a gross generalization. 14 states have tons of water.
Would you expect the price elasticity of demand for cars to be larger in the short-run or in the long-run? Why?
Cars are consumer durables, which are goods that last a long time. In the short-run consumers are more responsive to price change. In the short-run the demand for cars are elastic. Consumers are less likely to buy another car until their car wears out in the long-run, in which case buying a new car would become a necessity. In the long-run the demand for cars are inelastic.
What is the cross elasticity of demand?
The law of demand explains that demand will change due to a change in the price of the commodity. But it does not explain the rate at which demand changes to a change in price. The concept of elasticity of demand measures the rate of change in demand. The concept of elasticity of demand was introduced by Alfred Marshall. According to him “the elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price and diminishes much or little for a given rise in price”. Types of Elasticity of Demand There are three types of elasticity of demand; 1. Price elasticity of demand; 2. Income elasticity of demand; and 3. Cross-elasticity of demandCross Elasticity of DemandThe responsiveness of demand to changes in prices of related goods is called cross-elasticity of demand (related goods may be substitutes or complementary goods). In other words, it is the responsiveness of demand for commodity x to the change in the price of commodity y.Ec = Percentage change in the quantity demanded of commodity X / Percentage change in the price of commodity yEc = (∆Qx / Py) x (∆Py / Px)The relationship between x and y commodities may be substitutive as in the case of tea and coffee (or) complementary as in the case of pen and ink.Measures of cross-elasticity of demandInfinity - Commodity x is nearly a perfect substitute for commodity yZero - Commodities x and y are not related.Negative - Commodities x and y are complementary.Factors determining elasticity of demand1. nature of the commodity,2. uses of commodity,3. existence of substitutes,4. postponement of demand,5. amount of money spent,6. habits and7. range of prices of commodity.
What is the elasticity of electric cars?
You only have to look at the news of about a year ago for your answer. Nissan was establishing manufacturing plants in the US for the Leaf and their batteries. After the factories opened they lowered their prices. Two things happened from this. Other manufacturers (except tesla) responded by lowering their prices and sales of electric vehicle increased. This is the definition of an elastic product. One variable affected another. An inelastic product would be one where the price was set by monopolistic or governmental control. rationing and diamonds might be considered examples. The market theory of economics suggests that everyone pursuing their individual selfish self interst will grant the most efficient allocation of resources and be a net benefit to society. The theory of market failures suggests that this is not always the case. Externalities, lack of diversity and unequal bargaining positions represent forces outside of markets that can cause a failure of markets. We can buy fuel at many different places but most people have few options to buying petrochemical fuel therefore it is only the appearance of choice and not a true market. Petrochemicals have a strong externality issue. And on one side are mostly uninformed consumers and on the other a handful of trillion dollar corporations. Electric cars will reduce pollution as we begin to avoid the externalities associated with petrochemical fuels. Additionally an increased market share by electric vehicles corrects the market by offering more options increasing diversity and by causing us to then focus on the source of that electricity. More electric cars will increase pressure to clean up our primary source of CO2 emissions and other pollutions: coal fired power plants. Subsidies are a "cure" to the consumer for the "positive externality." It essentially pays them for the benefit that their buying decision confers to society and attempts to encourage more of the same action. .
Why is the demand for complementary goods inelastic?
Complimentary goods are those which are jointly used together. For instance, Sugar and Coffee.The demand for complimentary goods is not necessarily inelastic. The elasticity of demand depends on what the good is.If the good in question (say, car) has close substitutes available, then an increase in price would induce the consumers to move to the substitutes causing the demand for coffee to fall. If the demand for car has fallen, its complement, i.e. petrol will also not be demanded much as petrol is supposed to be used to fuel the car.This is a case of elastic demand for complimentary goods.However, if there are no close substitutes of car available, an increase in car's price will not influence consumer behaviour much leading to a slight decrease in its demand. A small change in the demand for car will lead to a small decrease in the demand for petrol too.This is a case of inelastic demand for goods.There are other determinants that affect the elasticity of demand for goods such as time horizon, nature of goods (habitual, luxury, necessity), etc.Hope this helps!
Do luxury goods have elastic demand?
Nature of Goods is one of the factors affecting elasticity of Demand -Elasticity of demand also depends on whether the commodity is a necessity or a luxury.Goods which are necessities tend to have inelastic demand whereas demand of luxury goods tend to be relatively elastic.People generally prefer not to cut down consumption of necessities even in case of price increase.However, in case of luxury products, a consumer may postpone his decision to buy the product if price is too high thereby making demand of luxury goods more elastic as compared to necessary goods.Refer - Factors Affecting Elasticity of Demand
Is there a high cross elasticity of demand between a new and an old car?
Demand for used cars is highly elastic. If a used car of the same make and model wasn’t substantially cheaper than the new version it’s fair to assume almost every consumer would choose the new car.The fact that a new car would sell at a 35–40% discount the second it’s driven off the lot suggests demand is highly elastic.