Question

What would you expect the price elasticity for the following commodities and commodity pairs why?

Refrigerators in Siberia versus in Tropics

Public transportation in the U.S.A. versus in Mexico

Gasoline in one week versus gasoline in three-years

Each rubber band

Cross-Atlantic air travel versus air travel from Boston to New York

Heating oil in Winter versus in Summer

Answer 1

A) Since refrigerators are more of a necessity in tropical regions than Serbia, demand for refrigerators would be comparatively inelastic in tropical areas

B) Inelastic in Mexico, because people are relatively poorer in Mexico and do not have much access to private transportation. This makes people in Mexico rely on public transportation more, as compared to US

C) Elastic over three year period. This is because price elasticity of demand for a good is always relatively elastic over time, as over time a lot of substitute goods become available

D) Inelastic in case of cross atlantic travel. This is because there is no other option to cross atlantic than air travel. While in case of Boston to NY, there are many other options available like train

E) Inelastic in winters. This is because people demand heating oil more during winters than summers.