Product Elasticity

Different products have different elasticities. Heart medication, for example, is inelastic, and corn is elastic. Find a product that has not already been selected by another student and describe its price elasticity and income elasticity. How much control might an organization have over pricing based on a product’s elasticity? Discuss which of the elasticity rules you used to determine your answer.

Price elasticity of demand is one concept that we experience in our day-to-day life. The law simply tells that, other things equal, consumers will buy more of a product when its price declines and less when its price increases. We experienced this scenario last year in our daily life. We used to buy lentils from the Indian grocery stores in Bay Area. A bag of 5 lbs used to cost $5. With the recession hitting the economy, production of lentils had gone down drastically and the Indian Government was seriously contemplating about stopping export of lentils to other countries including US. When rumor started floating around about the impending ban on the export, people started buying multiple bags of lentils at the above price. This caused a shortage of lentils and shopkeepers raised the price of each bag to $15. People stopped buying lentils once the new price was set. It stayed in that state for few months. After five or six months, things came back to the previous state. This incident clearly showed how consumers bought fewer bags of lentils when the price went up. Even though there was no substitute to this product, people stopped buying it because of the increased price of the product. “…price elasticity reflects changes in the purchased quantity of a commodity with changes in that commodity’s price, cross-price elasticity reflects changes in demand for a particular commodity when prices of other products change” (Andreyeva, Long & Brownell, 2010, p. 2).

Income elasticity of demand on the other hand measures the degree to which consumers respond to a change in...