Question

C. Give a reason why the demand for:

1. airline travel is elastic.

2. coffee is inelastic.

Answer 1

Demand tends to be elastic or inelastic because of a number of factors such as lack of close substitutes, the proportionate of total income spent on the good, whether the good is a normal or luxury good, etc.

Airline travel is still a luxury good for many people. Also, there are substitutes. Moreover, airline travel is costly and constitutes a significant portion of the spending by a consumer. So, the demand for airline travel tends to be elastic.

Coffee is not a luxury good and it is a necessary good for many. Also, people with strong preferences for coffee have no close substitute for it. In addition, the money spends on coffee is a small portion of the total spending by consumers. So, coffee tends to have inelastic demand.