Question

Farmers can suffer from the weather in two different ways. First, bad weather can mean that particular farmers have little or nothing to send to market and therefore do not benefit greatly from the high prices earned by the lucky ones. Second, good weather that brings bumper crops may lead to such low prices (even if quantities are high) that profits are squeezed or eliminated. Can you explain which of these following goods would you expect to have the most inelastic demand and why: Swiss cheese, cheese in general, and dairy products?

Answer 1

Demand gets inelastic as it is expected to have fewer and fewer substitutes. For Swiss cheese, than cheese in general and than dairy products, we propose that dairy products most broadly defined as there are absolutely no substitutes for dairy products. For cheese in general there are fewer substitutes for cheese and for Swiss cheese there are many other types of cheese including Spanish and Italian cheese. This market is narrowley defined.

Hence we expect dairy products to have most inelastic demand.