Question

Suppose you notice that the price elasticity of demand for good X is 5.4 and that of good Y is 0.6, what are two of the reasons for difference between the two price elasticities of demand? Be sure to explain which reason applies to which good.

Suppose that you own a business and you intend to sell only good X or good Y above. Based only on the information above, will you prefer to sell good X or good Y? Explain your answer.

Suppose that you are a consumer who can choose between buying good X and good Y, will you prefer good X or good Y based only on the information above?

Answer 1

Good X is perfectly elastic. And good Y in inelastic. That means, X's demanded quantity fluctuates a lot with change in price whereas, Y's doesn't. X may be a good with a lot of close substitutes and Y without any substitutes.

I would prefer to sell good Y because irrespective of its price people will be willing to buy it making it more profitable for business.

I would choose as a customer because good X as there are many close substitutes to it.