Price Elasticity Essay Example | Topics and Well Written Essays - 250 words - 1

Price Elasticity - Essay Example In this case, if goods A and B are complementary, they have to be purchased together for a consumer to reap their utility. Complementary goods have a negative cross elasticity of demand; this implies that the demand of good A increases when the price of good B is decreased, where goods A and B are complementary goods. Conversely, the demand for A is decreased when the price of B is increased. This basically means that when higher quantity of A is demanded due to price decline, the demand of B will equally increase since A cannot be used without B. substitute goods exhibit positive cross-price elasticity of demand. Suppose X and Y are substitute goods. When price of Y goes up, consumers will go for X at a cheaper price but with similar utility as Y The income elasticity of demand measures the degree of change in demand of a commodity in response to changes in consumer’s income level. Inferior goods are those goods that a person may consider using when they do not have enough money, for example a cheap car. With little income, the demand for cheap cars will go up. Once the income increases, people tend to prefer more expensive cars and hence the demand of cheap cars goes down. Normal goods have a normal demand curve. In this case, the demand of a normal god will increase as the level of income increases. Conversely, the demand of a normal commodity will decrease with the level of income (Tobin, 1987). Various aspects including the availability of substitute products or goods, necessity degree and the greater the elasticity of good demand mostly influence the price elasticity of goods demands. Generally, demand tends to be elastic when there is availability of substitute goods in the market (Landsburg, 2011). In this case, the greater the substitute products in the market would result to demand elasticity. The best example is the Coca-Cola and Pepsi situation where the market is always flooded with availability of substitute products thus making the demand