Question

Price elasticity of demand depends on a few factors. You are supposed identify those factors for the following pairs of goods and explain which good is expected to have more elastic demand and why?

a) School books or fiction novels.

b) DVDs of music composed by A. R. Rehman or DVDs of Music in general

c) Bus rides during the next 5 months or bus rides during the next 5 years.

d) Expensive strawberry smoothie or water

Answer 1

A) fiction novels have more elastic demand.

Because fictional novels are considered to be luxury goods whereas the school books are necessary goods so the demand for fictional novels are elastic.

B) DVDs of music composed by A. R. Rehman

Since there are many other DVDs available by other singers so the demand is more elastic.

C) bus rides during the next 5 years have more elastic demand

The demand is more elastic in the long run.

D) Expensive strawberry smoothie have more elastic demand.

Goods that consumes large proportion of the income is elastic wheras the goods that consume less proportion of income are inelastic.