3. Determine if the demand for the following products is price elastic or price inelastic, and explain your answer. In your explanation, be sure to include how the necessity of a good and the availability of substitutes affect the price elasticity of demand in each of these specific cases:
• Gasoline as a commodity
• Gasoline sold at a local gasoline station
• Hotel rooms for people planning a vacation
• Hotel rooms for people on business to meet an important client
- Elastic (don't have to buy, investor can easily find substitute)
- Inelastic (no substitutes, you've just left home driving to work and your gas gauge is on E. you must buy it, your only choice is to not fill your tank completely).
- Elastic (very)
- Inelastic (e.g. absolutely need a 3-star or better hotel room in xxx city on xxx date)
In general,
"if you would purchase these products regardless of price...inelastic if yes, yes, elastic if no."
To determine if the demand for a product is price elastic or price inelastic, we need to consider two main factors: the necessity of the good and the availability of substitutes.
1. Gasoline as a commodity:
The demand for gasoline as a commodity is typically price inelastic. This is because gasoline is considered a necessity for most individuals who require it for their daily commute or other essential activities. Moreover, there are limited substitutes for gasoline, especially in the short term. This means that even if the price of gasoline increases, consumers are likely to continue purchasing it, as they have few alternatives readily available. Therefore, the demand for gasoline as a commodity is generally price inelastic.
2. Gasoline sold at a local gasoline station:
The demand for gasoline sold at a local gasoline station can be both price elastic and price inelastic, depending on the context. If there are several local gasoline stations in the area, and consumers have the flexibility to choose among them based on price, then the demand will be relatively price elastic. In this case, consumers can easily switch to a different station if they perceive a significant price difference. On the other hand, if there is only one local gasoline station or limited options, the demand is likely to be more price inelastic. Consumers may have little choice but to buy from that specific station, even if the price increases.
3. Hotel rooms for people planning a vacation:
The demand for hotel rooms for people planning a vacation is generally price elastic. This is because when people plan vacations, they typically have a range of options available to them. They can choose from various accommodations such as hotels, vacation rentals, or staying with friends or family. As a result, if the price of hotel rooms increases, consumers can easily switch to alternative options to save money. Therefore, the demand for hotel rooms for vacationers tends to be price elastic.
4. Hotel rooms for people on business to meet an important client:
The demand for hotel rooms for people on business to meet an important client is likely to be price inelastic. In this case, the necessity of the good becomes more significant. Business travelers often require specific services and amenities provided by hotels to ensure a comfortable and professional environment for their meetings. Additionally, the time sensitivity of their travel plans and the importance of meeting the client's expectations may limit the availability of substitutes. As a result, business travelers may be less price-sensitive and more willing to pay higher prices for hotel rooms, making the demand relatively price inelastic.