Name one product for which your demand is elastic and one product for which your
ID: 351783 • Letter: N
Question
Name one product for which your demand is elastic and one product for which your demand is inelastic. For example, if Subway raised its prices by 10 percent, would you reduce the number of times you eat there by 10 percent, by more than 10 percent, or would the price increase not change your purchases at Subway at all? Do you think most other consumers of these two products feel the same way? How should this information impact the pricing of those products?
Hunt, Shane. Principles of Marketing (Page 310). McGraw-Hill Higher Education. Kindle Edition.
Explanation / Answer
Cooking oil comes in various brands. The demand here is elastic. Even if the price changes by as little as 5%, the demand changes. In mall, particularly, where all brands of cooking oil are displayed together, customers usually choose the one with the lowest price per liter. No amount of marketing with a message that a particular oil has less cholesterol or it has added minerals, etc encourages some consumers particularly in the middle class to choose the oil with higher price.
Gasoline is one product for which the demand is inelastic. The pricing of gasoline products is very complex and sometimes dictated by factors like government regulations, OPEC cartelization, etc over which the consumer has little or no control. For example, if the price of gasoline increases by 10%, the demand will not decrease by 10% because consumers still have to commute to work, send their kids to school, etc. Even public transport will change the ticket fare in response to increase in gasoline prices.
Yes, majority of the consumers of these two products feel the same way. However, there could be a few select consumers who are attached to a particular brand of cooking oil. They may have a psychological tendency to buy only that brand.
This information about the elasticity allows companies to find an optimal price for their products to make the business more profitable. In a way, elasticity sets the upper and lower limits for the prices and aids in business strategy.
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