Think of a product for which your price elasticity would be

Think of a product for which your price elasticity would be greater than 1, or highly elastic. Describe the product and explain why you think it\'s elastic.

Next, think of a product for which your price elasticity is less than 1, or inelastic. Describe the product and why you think it\'s inelastic.

Solution

Luxury goods have price elasticity greater than 1 or it can be said that demand for them is highly elastic.This is because luxury items are consumed only by the rich in the society as they are priced highly plus these goods unlike necessity goods are not necessary for existance of a person hence if their price changes it brings a large change in quantity consumed of the luxury good, thus its price elastic.Also a luxury good is often consumed to depict the status of the person.Thus a reduction in price of such a good may render the good totally ineffective when it comes to conveying one\'s status.Thus in that case quantity of such a good may fall drastically in response to a fall in price of the good.

Necessity goods on the other hand have an inelastic demand.These goods are consumed by masses and are necessary for the very existance of an individual in specific quantities.Also their prices are also reasonable, not like luxury goods which are priced highly.Thus because of their necessary nature they are demanded in more or less same quantity whatever be the price hence their demand is price inelastic.