Question

In Chapter 6 we learned about many different types of Elasticity. For this discussion question we're going to practice what some of these elasticities represent. For each of the following come up an example of a good that you believe has the property listed:

1. A good that has own-price elasticity between 0 and 1 (in absolute value)
2. A good that has own-price elasticity larger than 1 (in absolute value).
3. Two goods that have negative cross-price elasticity.
4. Two goods that have positive cross-price elasticity.
5. A good with negative income elasticity.
6. A good with positive income elasticity.

For each item, list the good and then justify each answer: WHY do you think its elasticity would be that way?

Suggested responses for the second half of the week:
Do you agree with their choice of good? Did they get all their elasticity definitions/interpretations correct? Is there a better example of a good with that property?

Answer 1

1. A good that has own-price elasticity between 0 and 1 : this means that the demand is inelastic or demand is less than unitary elastic. When the price of such goods fall, the quantity demanded rises. An example of this type of good is kerosene oil. If the price falls the quantity demanded will rise and vice versa. People will lower the usage if it's demand rises. However this happens because the percentage change in price is higher than the percentage change in quantity.

2. A good that has own-price elasticity larger than 1: this means that the demand is elastic or demand is greater than unitary elastic. Also when the price of such good falls the quantity demanded rises. An example of such good is luxury items like air conditioner. This happens because the change in price is less than the change in quantity demanded. If there is a little change in the price of such goods tge quantity demanded will be affected more.

3. Two goods that have negative cross-price elasticity: when two goods have negative cross price elasticity that means that those goods are complementary goods. This means that is the price of one good rises, the demand for other falls and vice versa. The example of such goods are bread and butter. When the price of bread rises it's demand will fall resulting in the fall in demand of butter. This happens because the rise in price of one is accompanied by the fall in demand of the other.

4. Two goods that have positive cross price elasticity: when two goods have positive cross price elasticity this means that those goods are substitutes of each other. This means that when the price of one good fall, the demand for the other good will also fall and vice versa. Example of such goods are tea and coffee. If the price of tea rises people will drink less tea and will shift to it's substitute coffee which is still cheaper in comparison so coffee's demand will rise.

5. A good with negative income elasticity: when a good has negative income elasticity, this means that the good is a type of inferior goods. Inferior goods are those goods which have a negative relationship between income and quantity demanded. Quantity demanded decrease in response to increase in income and vice versa. An example of such good is coarse grain. This happens because when their is a rise in income people prefer to buy normal goods rather than going for the inferior goods. This shift creates a negative income elasticity for such goods.

6. A good with positive income elasticity: when a good has positive income elasticity, this means that the good is a type of normal good. Normal goods are those goods which have a positive relationship between the income and their quantity demanded. Quantity demanded increases in response to increase in consumer's income and vice versa. An example of such good is whole wheat. This happens because when their is a rise in the income of people people will buy more of these goods and also some people will shift to these goods from inferior goods. This creates a positive income elasticity for such goods.

NOTE: I HOPE YOU WILL BE SATISFIED WITH MY ANSWER. PLEASE DO PROVIDE RATING. THANK YOU AND HAVE A NICE DAY. :))