Question

Are iPhone’s elastic or inelastic? why?

Answer 1

When a product experiences only a slight reduction in sales in the event of a large price increase in percentage terms, its demand is considered inelastic. iPhones have inelastic demand which can be seen from the markup at sales. The price of most of the iPhones are almost 1.5 times the cost of production implying that the markup is high.

We know that when markup is higher, elasticity of demand is lower due to the monopoly / market power a firm has in relation with the price charged. Note that iPhone has no close substitutes, yes there are several competitors but they sell differentiated products and this does not affect the sales for iPhones.