Price Elasticity

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A product will be considered elastic if the product has an elasticity greater than one. A product with an elasticity less than one is considered inelastic. Generally, most products will be considered inelastic. An example would be gasoline, it is inelastic because no matter the price, consumers will continue to buy gas for their cars. Gasoline companies take advantage of this because they know that people need cars and transportation and that will not change. So they are free to higher the price as they see fit even if it is outrages. There are many different factors that go into price elasticity which could mean all the difference in the products we love. Close substitutes are a major factor when it comes to a product and its demand. If the …show more content…
This is due to the fact that the consumer is not afraid to switch to another similar product if it is cheaper. Some examples of close substitutes would be Coke and Pepsi, McDonalds and Burger Kings hamburgers, and Hertz and Enterprise. There are also weak substitutes, they will have low cross elasticity for its demand instead of high cross elasticity. Perfect substitutes are also an option. Another factor of price elasticity is whether or not it is a necessity or a luxury good. When it comes to a luxury good, they tend to have more of an elastic demand while necessities have an inelastic demand. A real world example would be of necessity is rare-earth metals. These metals care important in the manufacture of solar cells, batteries. China has all the power in this market. It produces 97% of total output of rare-earth metals. When there is a cost that could be involved when you are trying to switch between products, that demand is more inelastic. It is more inelastic because it is more difficult to switch between products. In this case a contract is most likely to be involved. This guarantees that the costumer cannot switch to another product within a certain time frame, making is

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