Question

1) Compare the price elasticity of demand for the two products. Which of these is more elastic and very brief explain why (i.e., which product are buyers more likely to be price sensitive)?

i) Diesel fuel for vehicles in the next six months or diesel fuel for vehicles five years into the future?

iii) Demand for milk sold in a town’s convenience store at 2 AM vs. demand for milk sold by a town’s convenience store at 2 PM? (Hint: assume all grocery stores in this town are closed at 2 AM)

Answer 1

1) In short run good are less elastic and in long run they become more elastic because in long run more substitutes become available and technological development in long run causes less dependence on diesel fuel which makes it more elastic . So, Diesel fuel for vehicles in the next six months : inelastic . diesel fuel for vehicles five years into the future : elastic .

2) Demand for milk sold in a town’s convenience store at 2 AM : Inelastic . Demand for milk sold by a town’s convenience store at 2 PM : Elastic .

At 2 am , when all other groceries are closed , people will have no other option but to buy milk from this store only and also milk is an essential commodity . But at 2 pm , there are many shops open selling identical packets of milk so it becomes more price elastic for the convenience store due to increase in supply .