Question

Give reasons or explain the following statements:

1. Demand for necessaries is inelastic.

2. Demand for habitual goods is inelastic.

3. Concept of Elasticity of Demand helps trade union leaders.

4. Demand for commodity having multiple uses has elastic demand.

5. Demand for goods having snob appeal has elastic demand.

Answer 1

1. Necessary goods are those goods which a consumer demands for sustaining his life. A consumer cannot reduce the consumption of these goods. For example, food is a necessity good. The demand for such goods does not change much in response to the changes in their prices. Even when the price rises the consumer cannot reduce their demand. Hence, such goods have an inelastic demand.

2. The goods that a consumer is habituated to, such as liquor, cigarettes, etc., have inelastic demand. As the consumer is habituated of these goods, a change in the price of these goods has lesser impact on their demand. For example, if a person is habituated of cigarettes a rise in price of it will not have much impact on the demand as it is difficult for the consumer to do away with cigarette. Thus, the demand for such goods is inelastic.

3. The concept of elasticity of demand is used by trade union leaders in collective bargaining. For instance, the trade union leaders can bargain for higher wages if they know that the demand for their labour is inelastic.

4. A commodity that can be used for different purposes (such as milk) will have an elastic demand. This is because if the price of this commodity increases, it will be used only for important purposes leading to a drastic fall in demand.

5. Snob appeal refers to the perception that higher priced goods are better. Also, for some people, higher priced goods are linked with their status symbol. Such products may include designer clothes, diamonds etc. Such an effect makes the demand for the good inelastic.