Discuss the relative price elasticity of the following products:
b. A specific brand of mayonnaise
c. Chevrolet automobiles
d. Jaguar automobiles
e. Washing machines
f. Air travel (vacation)
h. Diamond rings
a. Mayonnaise is a normal product used along with bread for making sandwiches or similar staff. The demand for mayonnaise will not change much because only a small percentage of income is used to buy it. There are a few varieties of substitutes available like butter and cheese. So, an increase in price will shift people to those substitutes. So, mayonnaise would be relatively inelastic
b. If we consider a specific brand of mayonnaise, any small change in the price of mayonnaise of this brand will shift the demand to the mayonnaise of other brands. So, the price elasticity will be relatively high.
c. Chevrolet automobile will have high price elasticity because there are many numbers substitutes with which a Chevrolet car can be replaced. For example, it can be substituted with a car of other brands like Ford, BMW, Honda, etc.
d. Jaguar automobiles will have relatively low elasticity because they are a specific type of vehicle or model which does not have many substitutes in the market. So people who have a preference for Jaguar automobiles will go for it and may not change the demand much because of the price change.
e. Washing machine is today almost a necessity and every household needs it. So, the price elasticity will be relatively low because irrespective of the price each house would need to have a washing machine.
f. A vacation air travel will be relatively highly elastic. This is because if the prices increase people will either postpone their vacation or take some other form of vacation that does not require air travel.
g. Consuming beer is a kind of addiction. People who are addicted to beer will not change their demand because of an increase in price. So, it will be relatively inelastic.
h. Diamond rings are luxury items and are bought very infrequently. There are very few alternatives to diamonds. A small change in price will not make much change in the demand for the product. So, it would be price inelastic.