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Now that you have a general idea of what elasticity is, let’s consider some of the factors that can help us predict whether demand for a product is likely to be elastic or inelastic. The following are important considerations:
With these considerations in mind, take a moment to see if you can figure out which of the following products have elastic demand and which have inelastic demand. It may be helpful to remember that when the buyer is insensitive to price, demand is inelastic.
Self Check: Explaining ElasticityAnswer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times. You’ll have more success on the Self Check if you’ve completed the two Readings in this section. Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section. Is iced tea elastic or inelastic?elasticity of demand for iced tea is 2 and is elastic.
Which of the examples are inelastic?The most common goods with inelastic demand are utilities, prescription drugs, and tobacco products. In general, necessities and medical treatments tend to be inelastic, while luxury goods tend to be most elastic.
What would be the effect on the equilibrium of a reduction in supply if the demand curve is perfectly inelastic?In case of perfectly inelastic demand the change in price will have no effect on the quantity demanded. The consumers do not change their demand due to the change in price. This usually is seen in case of necessities. Hence, the equilibrium quantity will be same the price might increase or decrease.
What is demand said to be called when the quantity demanded is very responsive to changes in price?If the percentage change in quantity demanded is greater than the percentage change in price, demand is said to be price elastic, or very responsive to price changes.
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