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Answer on Economics of Enterprise Question for Christina

Question #7884
Which do you think has the most inelastic demand: perfume, salt, penicillin, cigarettes, ice cream, chocolate ice cream? Why?
Expert's answer
The inelastic demand is the demand, which tends to remain unchanged despite the changing market conditions and prices. Thus, penicillin antibiotics have the most inelastic demand. They are historically significant because they are the first
drugs that were effective against many previously serious diseases. When people
want to be healthy they will take these antibiotics. There just few substitutes.
That's why even if the price of them increase, there is little that the consumer
can do, he still needs to buy them, as he needs it. Hence, little or no changes
in the quantity demanded for the penicillin antibiotics even if there are
changes in the price. As for other items people could live without them or use
substitutes: the perfume is elastic demand (the change in price will reduce
demand for it), salt - inelastic demand (some people could live not consuming it
or use substitutes), Cigarettes will have an inelastic demand as well. As there
is little substitutes and also people can be addicted to it. While ice cream
will have an elastic demand. There can be quite a number of substitutes to it.
If the price of the ice creams increase, immediately consumers will reduce the
demand of them, and opt for substitutes.

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Assignment Expert
26.10.2012 08:03

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sujoy
25.10.2012 12:59

Correct 100%

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