Question

What does it mean if I tell you that the price elasticity of demand of apples is 3.2, while the price elasticity of demand of apple juice is 1.5? In your answer, be sure to explain what elasticity is and whether you consider these products to be elastic or inelastic. Finally, suggest reasons why these elasticities might make sense. Are there complements? Substitutes? Explain.

Answer 1

Price elasticity tells how much the quantity demanded will be affected with a given change in price of that good.

Price elasticity of demand of Apples is 3,2 which implies that 1 % change in price would lead to 3.2% change in apples demanded. Whereas, that equal to 1.5 would imply 1% change in price would lead to 1.5% change in apples.

both the product's elasticity is greater than 1 which implies both are elastic. But, comparatively, demand for apples is more elastic than that of Apple Juice. That probably is the case because higher number of substitutes are available for Apples.