Q3 Choose a product or a service that is elastic or inelastic and ask 10 student
ID: 1108568 • Letter: Q
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Q3 Choose a product or a service that is elastic or inelastic and ask 10 students about their consumption behavior if the price change. The following questions should be answered in your write up, 1. How much is their current consumption of the product or service at the current prices? (e.g. coffee, meals, chocolate, cigarettes, gasoline for their cars, chewing gum, bottled water, internet service on mobile phones, telco service provider, etc. triple). behavior, how would they do it? (i.e. move to cheaper substitute) 2. At what price would they change their consumption behavior? (i.e. double, 3. If the prices reached that level where they will change their consumption 4. How does their behavior change in the short run versus long run? 5. If the Value Added Tax proposed is implemented, how would they change their consumption given the current prices? (i.e. reduce, increase, remain the same, move to cheaper product)Explanation / Answer
cigarettes : demand for cigarettes is inelastic at the current price and if the price changes further demand will be inelastic in nature as the people are addicted to smoking.
internet service on mobile phones : being the services consumed by people will be elastic in nature as the luxury goods and services will have elasticity
in terms of inelastic demand whether prices double and triple there will be no effects on demand but when the product and services are luxury and comfortable then demand will be elastic in nature and price whether double and triple then demand will decrease and more decrease respectively.
when the good's demand like cigarette inelastic in nature the consumer will not change their consumption behavior and will not substitute over other product.
but when the service demand is elastic in nature then consumer will switch to those product and services whose are substitute in nature and have less price for the same.
inelastic demand in short and long run is same
but elastic good's demand in short run not change as consumer do not have substitute in short run but switch to substitute goods in the long run as their are two or more substitute are available
in terms of inelastic goods when VAT introduced demand might be reduce to small level but never finish or substitute to other good, it can be possible that consumer might reduce the consumption to 2-3 quantity from 8-10 quantities after introducing the VAT.
but in case elastic goods demand of such goods and services reduces significantly or move to substitute goods which have same quality, benefits.
Question Answer remarks How much is their current consumption of the product or service at the current prices ?cigarettes : demand for cigarettes is inelastic at the current price and if the price changes further demand will be inelastic in nature as the people are addicted to smoking.
internet service on mobile phones : being the services consumed by people will be elastic in nature as the luxury goods and services will have elasticity
At what price would they change their consumption behaviorin terms of inelastic demand whether prices double and triple there will be no effects on demand but when the product and services are luxury and comfortable then demand will be elastic in nature and price whether double and triple then demand will decrease and more decrease respectively.
If the prices reached that level where they will change their consumption behavior, how would they do it?when the good's demand like cigarette inelastic in nature the consumer will not change their consumption behavior and will not substitute over other product.
but when the service demand is elastic in nature then consumer will switch to those product and services whose are substitute in nature and have less price for the same.
How does their behavior change in the short run versus long run?inelastic demand in short and long run is same
but elastic good's demand in short run not change as consumer do not have substitute in short run but switch to substitute goods in the long run as their are two or more substitute are available
If the Value Added Tax proposed is implemented, how would they change their consumption given the current prices? (i.e. reduce, increase, remain the same, move to cheaper product)in terms of inelastic goods when VAT introduced demand might be reduce to small level but never finish or substitute to other good, it can be possible that consumer might reduce the consumption to 2-3 quantity from 8-10 quantities after introducing the VAT.
but in case elastic goods demand of such goods and services reduces significantly or move to substitute goods which have same quality, benefits.
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