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a company selling a product that is essential should be more stable than another company. This...

a company selling a product that is essential should be more stable than another company. This brings up the concept of elasticity of demand, which ties into how companies should set their prices.

What kinds of items are very elastic? Can you come up with some products that are very inelastic?

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Answer #1

Items that have many substitutes are very elastic as the consumer has many choices and can find substitute very easily. Hence those items are price elastic. Example all the luxury goods like cars, cosmetics, branded textiles & clothing, furniture, transportation services.

Items that are essential for living are inelastic. Example gas, electricity, food, water, oil. All these goods are required and needed for everyone for their daily living. They are consumed irrespective of the price.

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