For your required comments on two of your classmates\' posts: Do you agree with

Question

For your required comments on two of your classmates' posts:

Do you agree with your classmates’ assessment of the elasticity of the items they purchased?

Provide an alternative product or service to the items your classmate purchased. For one item, it needs to be a complement and the other a substitute. State what that item is, and whether it is a complement or a substitute good. (e.g. Honda – I bought a Toyota, it is a substitute. Prescription drugs - complement). Also, give an estimate of the cross-price elasticity coefficient for your items (e.g. > 0, 0, or <0)

1. What two products or services did you buy? State whether they are elastic or inelastic, estimate their elasticity coefficient and explain why they are elastic or inelastic.
One of my most reason inelastic product I had to buy was Gasoline, coefficient of .60. I work in the westside of Los Angeles. I commute every day from Los Feliz, to little Santa Monica, it takes an hours and twenty minutes, so I’m using a lot of fuel all the time. Just a few day ago I had no choice but to pay $4.00 per gallon at the nearest gas station. Gasoline is inelastic because it’s necessary. No matter what price it is, and If I need gas on my car to get me home after a long day at work. I will pay the price. Now, with that said we can always adjust how much we want to spend, but it will still not change the elasticity of the product.
My most elastic product was done today. I try to order lunch online today because I forgot my lunch and I was too busy at work to walk to a near store. I was trying to order Thai food with a coefficient of 2. I try to place the order but when I finally go down to the total, the delivery price and the food was going to cost me $26.00 of a lunch plate that only cost $10.00. All the extra, such delivery fee, tip, and tax got me so discourage that I got up from my desk and walk to a food store near me. I saved me money and got a little exercise. Which is better for my health and wealth been.

2. Do you consider yourself to be price sensitive? Give a rating on a scale of 1 to 10, with 0 = not price sensitive at all and 10 = extremely price sensitive. Explain why and provide an example.
I will say I am an 8, price sensitive. In my twenties I was such a consumer. I made really good money in my 20’s and I never had money because I will pay any price for anything I wanted. As I got much older, now I don’t buy as much. I also love to save and invest my money. I will drive my paid car till the wheels fall off.

3. Suppose your income at the time you purchased these items now suddenly tripled e.g. went from $30,000 to $90,000 annually. Would you still buy the same items or something else? If so, what would you buy?
If my income will triple, I will still do the same. I will buy gas because I need it, and I will not pay much money for delivery food. I will invest my money just the same way I am already doing it. The only thing I would do different if my money triples, I would book a hotel and get away for a weekend to my favorite wine tasting spot. So, I can enjoy my family, and celebrate my raise. I like to create memories with my money.
4. Based on your answer in #3, does that make your items inferior or normal goods?
If I’m booking a hotel and driving for a weekend to wine country. I will say that it’s an inferior goods, because it’s not something everyone ones and can do it. It’s more of a luxury.
5. For fun, imagine you are now one of the Kardashians. State which one you are (e.g. Kim, Khloe, Rob, etc). Would they buy something else instead of your original purchase? What would the Kardashian purchase instead?
I am Kim, and yes, I will buy me some quality time at the spa, so I can firming my skin. I will not skip to.

Explanation / Answer

Elasticity is nothing but simply means the measure of change in one variable due to corresponding change in other variable. The demand of the product is influenced by the change in price, income of the consumer and the price of the related goods, taste and preferences and expectaions. When demand changes in response to the change in prices, the measure of responsive change in demand to the change in price is called price elasticity of demand. When the demand of one product changes due to change in the price of related goods, the degree of change in demand due to the change in price of related goods is known as cross elasticity of demand. When the demand for a product changes while income of the consumer changes the responsive change in demand is called income elasticity of demand.   The basic determinants of demand are price of the commodity, income of the consumer, price of the related goods, taste and preferences of the consumer and expectation of price. Symbolically it is written as Dx =f( Px, Pr, Y, T, E) . Px = own price of the commodity, Pr = price of the related goods, Y= Consumers income, T= conuers taste and preferences, E= consumer’s expectation. While determining the elasticity between the two variables, we assume that other variables are constant. For example while we determine the price elasticity, we assume the other variables like income, price of related goods, taste and preferences and expectations remaining constant and so on. This is the rule of measuring demand elasticity.

1. The Honda and Toyota are substituted goods. The substituted goods are those goods that the consumer has the choice to substitute between them because both satisfy a particular want.

But in case of complementary goods the consumer has to use both the goods to satisfy a particular want. They cannot be used in isolation. For example a doctor’s prescription for drugs and the drugs are complementary. The drug has no use without a doctor’s prescription and the prescription has no use without drug.

The price elasticity between the two substituted goods and complementary goods is determined by whether they are close substitute or weak substitute and close complementary or weak complementary.

If the products are close substitute a change in the price of one leads to considerable change in the demand of other. Thus the cross elasticity is greater that one. Cross price elasticity >1. If the products are weak in substitutability the cross price elasticity is will be <1 In the first case a small fall in price of one leads to larger change in the demand of other. In the second situation a big fall in price of one does not have considerable change in the demand of other? The cross elasticity of demand is =0 when the product are not related in any way

2. According to use the goods can be classified as Normal goods, Necessary goods, and Inferior and luxury goods.

The price of the commodity has little influence on demand in case of the necessary goods. The demand for necessary goods is governed by income of the consumer. But the demand for normal, inferior and necessary goods is influenced by price.

You had to pay a high price for gasoline in the nearest gasoline station; even at a high price you demanded the same because it is necessary goods. It is purely governed by income in your pockets. You have the income and it is necessary, you purchased. The income elasticity for necessary goods is =0.

The income elasticity of inferior goods is <0. The increase in income compels the consumer to purchase high priced goods.

The lunch from online service and from near food store is substitution of the consumer from high priced goods to low priced goods. The high price over the lunch in online compels you to shift the lunch from online to the near food shop. Here the cross elasticity is strong.

The demand for the product is influenced by the income level of the consumer. At higher level of income more will be demanded in case of normal goods. The demand for necessary goods will not increase with the increase in income of the consumer. We will buy the same quantity of gas cylinders as income increase, same quantity of food crops etc.

In case of luxury goods the income elasticity is greater than one. As income increase the consumer prefer more of luxury goods. Booking of hotel and visiting of wine shop is the example of increase in income and increase in consumption of luxury goods. The income elasticity in case of luxury goods is >1. The people spend more on luxury goods as their income increase.

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