Question

Give an example of a product that has price elasticity and a product that does not have price elasticity and give reasons why for each. It's a good idea to also offer substitutes for those products when defending your arguments.

Answer 1

Price Elasticity is referred to the measure of effect at which the change in price of a product affects its demand and supply choices.

Those product which do not have any change in demand even if there is an increase in the price of those goods is known as Inelastic goods or those who do not have price elasticity. Most of the necessity goods come under this category of products. These can be medicines and water. Even if the price of medicine, lets say X increases, those who require that particular medicine X cannot choose other any other medicine, therefore they do not have any substitute of X. No matter how much the producer increases the price, the consumers will buy the medicine. Similar product is Salt.

Those product which have a wide range of changes in demand and supply due to the changes in their prices are known as Elastic goods or goods that have price elasticity. Normal goods can be an example of products that have price elasticity. For example, Coca cola increases its price from 30Rs to 40Rs, the consumers will then find its cheaper substitute like Pepsi, which might be cheaper but provide the same satisfaction as Coca Cola. It can be seen that just of difference of 10Rs led to the consumers demand fall for Coke and increase for Pepsi. Hence, those goods which have high price elasticity have easy available substitute.