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:
1)gasoline as a commodity
2)gasoline sold at a local gasoline station
3)Hotel rooms for people planning a vacation
4)Hotel rooms for people on business to meet an important client
To determine if the demand for a product is price elastic or price inelastic, we need to consider the necessity of the good and the availability of substitutes. Let's analyze each product individually and explain the factors influencing the price elasticity of demand:
1) Gasoline as a commodity:
The demand for gasoline as a commodity is generally considered to be price inelastic. This means that changes in the price of gasoline have a relatively small impact on the quantity demanded. In terms of necessity, gasoline is essential for most individuals who rely on cars for transportation. Moreover, there are limited substitutes available for gasoline. Electric cars and public transportation are alternatives, but they may not be accessible or feasible for everyone. Due to these factors, even if the price of gasoline increases, consumers usually cannot easily reduce their demand in the short term.
2) Gasoline sold at a local gasoline station:
The demand for gasoline sold at a local gasoline station can be either price elastic or price inelastic, depending on the circumstances. If there are several gasoline stations in the area, consumers have the option to switch to a different station if the price increases too much. In this case, the demand would be more price elastic because there are substitutes readily available. However, if there is only one or a limited number of gasoline stations in the vicinity, consumers may have no choice but to purchase gasoline from that station. In such a situation, the demand would be more price inelastic because consumers do not have easily accessible alternatives.
3) Hotel rooms for people planning a vacation:
The demand for hotel rooms for people planning a vacation is usually considered price elastic. Vacationers have various accommodation options available to them, such as hotels, motels, Airbnb, or staying with friends or family. If the price of hotel rooms increases, consumers have the flexibility to opt for cheaper alternatives. This sensitivity to price changes makes the demand for hotel rooms relatively 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 often price inelastic. In this case, the necessity of the good plays a significant role. Business travelers typically require a comfortable and convenient place to stay during their trip. They may have limited flexibility to choose alternative accommodation options due to their specific needs and time constraints. As a result, they may be less sensitive to price changes, making the demand for hotel rooms inelastic.
In summary, the necessity of a good and the availability of substitutes are crucial factors that influence the price elasticity of demand for these specific products.