Monday, March 3, 2014

What factors cause demand for a product to be elastic?

Certain types
of products are generally more elastic than others. For instance, if a product is nonessential
it will obviously be far more elastic. For instance, raising the price on a pack of baseball
cards is probably going to decrease sales more than raising the price on a lifesaving medicine,
especially if there are no alternatives. This is an extreme example, but it applies to other
areas. Gasoline, while certainly responsive to price, is relatively inelastic. People still need
to get to work even it is going to cost them.

Additionally, some products
that are not essential are perceived as being that way. Cigarettes are a perfect example of
this. Smokers will generally continue to purchase this product when taxes go up or the price
increases. That is because the addictive nature of the product makes it appear as if it is
essential. Any product that is either essential or for some reason a staple of daily life is
going to be less elastic, as long as competitors are raising prices at a similar rate. People
will always buy toilet paper, milk, eggs, etc, even with small price increases. This has been
shown many times with the price of eggs, for example. 

Other goods, that are
more optional, are much more sensitive to change. 

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