Examples of Price Elastic Demand
Elastic Demand can be defined as a change in the demand for the quantity or change in the behavior of consumers for goods whenever there is a change in the price of that product and hence same can be determined by dividing the percentage change in quantity demanded by the percentage change in price. In this article, we discuss the top 4 examples of price elastic demand.
Top 4 Examples of Price Elastic Demand
In recent times there have been a lot of competitions in terms of online streaming apps like Netflix, Amazon, Hotstar, etc. Let us assume that whenever there is an increase in the price of online streaming by 10%, then consumers prefer to switch to another online streaming app and hence there could be demand for that app by 15%. Based on the above information, you are required to calculate how Elastic demand is the online streaming apps are?
It is observed here that in case there is an increase in the price of online streaming by 10% then there is a change in demand for same that is a decrease in demand by 15% and to calculate the how elastic the demand we shall divide the change in quantity demanded by a change in price which shall be in percentage that is 15% / 10% which is 1.5 times. Hence, this implies that whenever online streaming apps increases the price by 1%, they would lose consumers by 1.5%. hence, this can be stated that the demand for online streaming apps is elastic in nature.
Consumers have a lot of preference in life for goods but however there are some necessary products which they can’t avoid having. With similar need type of products, the management of HUL is analyzing the demand for its product cooking oil. Assuming there is no competition for the same in this example. The HUL management wants to increase the price of the product due to higher input cost. It has gathered below information from its history.
When the prices of cooking oil were increased from $50 to $55, the quantity demanded changed from 35,000 units to 34,700 units.
You are required to calculate the demand elastic of this product and comment upon the same.
It is observed here that in case there is increase in the price of cooking oil say by ($55 – $50) $5 then there is change in demand for same that is decrease in demand by 300 units (35,000 – 34,700) and to calculate the how elastic the demand we shall first calculate percentage changes which is $5/$50 10% while for the quantity it is 300/35,000 which is 0.86% and now we shall divide the change in quantity demanded by a change in price which shall be in percentage that is 0.86% / 10% which is 0.086 times.
Hence, this implies that whenever the cooking oil product price increases the price by 1%, they would lose consumers only by 0.086%. hence, this can be stated that the demand for cooking oil is inelastic in nature.
One of the key accessories that are sold with the cell phone is the charges. It was observed that the whenever there was a decrease in the price of the mobile phone charges by 2%, the demand for same was increased by 2% and on the flip side if the price of the charges were increased by 2%, again there was a shortfall in demand for same by 2%. It was observed that this product was considered as discretionary by the consumers, they would prefer to have slightly more if there was a decrease in the prices while would prefer less if there was an increase in the price.
You are required to comment upon the type of elastic discussed in the above example.
It is observed here that the demand for the charges increases by 2% when there is a drop in prices by 2% and again when there is an increase in price by 2% again the demand falls by 2%. Therefore, the demand elasticity of the mobile phone charger is 1. This is the typical case of unitary elasticity demand where the percentage change in the price of the product is equivalent to the percentage change in the quantity demanded.
Salt is the common thing used in the cooking of the food whether at home or at cafes or restaurants. One of the analysts working at TMB investment advisors conducted a survey and he observed that when the price of salt was increased by $10 which was just 7%, the demand for the product remained the same and there was no change in the quantity demanded.
Based on the above information, you are required to comment upon the type of demand elastic that is discussed here.
It is observed here that the demand for salt remains the same even though there is a hike in prices by $10 which is 7%. Therefore, the demand elasticity would be 0. This is the typical case of perfectly Inelastic demand where the percentage change in the price either side hike or fall doesn’t affect the quantity demanded of the product.
Hence from all of the above examples, it can be concluded that demand elasticity is nothing but change in the demand whenever there is a change in the price of the product. Based upon the nature of the goods, the elasticity of demand can be either relatively elastic, relatively inelastic, unitary elastic, perfectly elastic or perfectly inelastic. Goods such necessity goods, basic goods or daily requirements goods typical are perfectly inelastic in nature as without those goods the consumers feel uneasy.
Luxury goods such as cars, bikes, premium smartphones, gold, etc. all these bear price elastic demand as whenever there is fall in prices the demand increases more than fall in prices and similarly when there is a hike in prices the demand for same again falls by a bigger margin than a rise in prices.
Gasoline is the typical example of inelastic demand in nature and its quantity changes in a lesser amount than compared to hike in its prices.
This has been a guide to elastic demand examples. Here we discuss its definition and top 4 examples of price elastic demand with detailed explanation. You can learn more about accounting from the following articles –