In each of the following cases indicate which good you think

In each of the following cases, indicate which good you think has a relatively more price elastic demand and identify the most likely reason, in terms of the determinants of the elasticity of demand (more substitutes, greater share of budget, or more time to adjust).a. cars or Chevrolets b. salt or housing c. food or rice d. natural gas this month or over the course of a year

Solution

  Following factors determine the price elasticity of demand:-

a) Cars or Chevrolets: It will be more for chevrolets as it is difficult ot find substitutes of cars but there are many substitutes for chevrolets. Hence consumer can get shifted to the substitutes which are avaiale.

b) Salt or housing: It will be more for house because:

i) Salt is a necessity;

ii) Its share in total expenditure is very less.

iii) It has many uses- used in all eatables.

c) Food or rice: Rice because rice can be sustitutes by noodles or chapati or other fod items but food in general has no alternative.

d) Natural gas this month or over the cours eof the year: It will be more for the course of the year because it is easier to adjust in long run and find substitutes for a product.