For each of the following pairs choose which good you would

For each of the following pairs, choose which good you would expect to have more elastic demand, and briefly (at most one sentence) explain why. (15 points)

Milk OR Grape Soda

One of several sushi restaurants OR the only ramen restaurant in town

Cheerios OR All Breakfast Cereal

Solution

1. Milk.

As it has several uses, therefore, as the prices change the effect of a change in demand is more. Hence, the milk is having elastic demand.

2. One of several Sushi restaurant. When the substitute are available the price effect on demand is more.

3. All breakfast cereals. When the consumers has more choices to choose from, the price elasticity of demand will be more.