Question

Study the statement given below and state whether demand will be elastic or inelastic citing reasons for your answer:

(i) A consumer postpones the purchases of a refrigerator till the off-season sale.

(ii) Demand for cigarettes by a habitual smoker.

(iii) Rolex watches

Answer 1

1) The demand for refrigerator is relatively elastic demand since it is a luxury good and hence, the proportionate change in quantity demand is more than the proportionate change in price.

2) Demand for cigarettes by a habitual smoker is a type of inelastic demand since it is the habit and hence, quantity demand does not get affected by the change in price so much.

3) Rolex watches possess elastic demand since it is a luxury good. Hence, the proportionate change in quantity demand is more than the proportionate change in price.