Question

1. Based on the determinants of elasticity as discussed in the text, explain what the price elasticity of demand of the following products would be: (a) ballpoint pens; (b) Crest toothpaste; (e) diamond rings (d) sugar, and (e) refrigerators.

Answer 1

(a) Ballpoint pens:- Demand should be slightly elastic because there are substitutes, and they are not a complete necessity. However, they are not very durable and the price is small relative to most incomes, and the substitutes are not quite the same so the elasticity will not be high.

(b) Crest toothpaste: Demand should be very elastic because there are very many other brand-name substitutes, and this brand is not a necessity.

(c) diamond rings: Demand should be elastic because there are other types of rings, the price is high relative to most incomes, they are durable, and they are a luxury item.

(d) Sugar: Demand should be inelastic because there are few close substitutes, the price is small relative to most incomes, it is not a durable good, and not usually viewed as a luxury.

(e) Refrigerators: Demand is probably somewhat elastic because the price is large relative to most incomes and they are durable so an old refrigerator can last until °the price is right.However, refrigerators are not luxuries and there are no good substitutes, so the demand is probably not very elastic with respect to price.