There are many types of products with elastic demand
and inelastic demand. For example, groceries, car and branded goods are all elastic
products . However, there are also determinants that affect the elasticity of demand,
such as the level of income and price of related goods. If the level of income decreases, people will tend
to decrease their consumptions by putting their priority in necessities instead
of luxuries or wants, changing their demand into inelastic. If the price of petrol increase, the demand for car will be more elastic.
Let us discuss more specific about the two types of substitute products: Pepsi and Coca Cola. These products are also considered as luxuries because they are not the necessities of human. Luxuries-type products are mainly under elastic demand. For Pepsi and Coca Cola, not only that the consumers compare the taste, the product’s packaging and the promotion from these two rivals, but also, the price of these products. They had been competing to get the best price to offer to the market for ages! Of course, the consumers will always choose the cheaper brand.
To illustrate, when the
price of Coca Cola decrease and is lower than Pepsi, consumers will buy Coca
Cola instead of Pepsi.
 |
| Elastic Demand |
On the other hand, products
with inelastic demand are the one that we need in our daily life. For instance,
the necessities that we need are electricity, water and petrol; for heavy smokers, cigarettes is a must in their life. Without these,
our daily life will be affected, that is why we purchase them even if the price
of products increased and same goes to heavy smokers. Changes in price will not affect the quantity demanded
too much.
For example, one of the
important energy sources would be petrol which is used to run the engine in our
transport. A few months ago, the price of petrol increased, yet people unable
to cut down the usage of petrol as it will affect the transportation to work
and it will lead inconvenience. So, inelastic demand can shown by the diagram below. Although the price of petrol increase, the quantity demanded decrease in a small portion.
 |
| Inelastic Demand |
In conclusion,
elasticity is used to measure the responsiveness from the consumer towards the
changes in economic variables, such as price and level of income, plus the
other determinants such as the substitutes available in the market and luxuries
vs. necessity.
Sources:
<http://www.tutor2u.net/economics/content/topics/elasticity/elastic.htm>
<http://www.aamcompany.com/a-refreshing-new-strategy-in-the-beverage-industry/>
<http://www.forbes.com/sites/
Sources:
<http://www.tutor2u.net/economics/content/topics/elasticity/elastic.htm>
<http://www.aamcompany.com/a-refreshing-new-strategy-in-the-beverage-industry/>
<http://www.forbes.com/sites/
Simple and understandable
ReplyDeleteFrom my opinion, cigarettes are considered inelastic, because for smokers, they will still pay even though the price of the cigarettes increase. Awareness of the disadvantages that smoking will bring to the health of people is increasing and cigarettes are not really what normal people would buy. Hence, why would cigarettes be considered a luxury good if it harms the health?
ReplyDeleteTrue, cigarettes are inelastic. Smokers are willing to pay even at a higher price.But, we did not considered that cigarettes is a luxury type product. As I mentioned above, luxury-typed product is for elastic demand and cigarettes is an inelastic product.
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