1.2.3 - Price, income and cross elastics of demand

• Price matters in demand for peak time rail travel as commuters have a price inelastic demand due to the lack of close substitutes and the high cost of switching to alternatives.
• Demand for fizzy and soft drinks is price elastic as there are many competing products in the market and zero cost of switching.
• Demand for over the counter painkillers is less price sensitive as consumers need them at key times and purchase is a necessity.
• Demand for vet services is price inelastic as pet owners have a strong attachment to their pets and are willing to pay nearly any price for essential treatment.
• Demand for individual pet insurance policies is more price elastic as there are many competing insurance policies available in the market.
• Demand is more price elastic for necessities like cigarette, alcohol, Netflix.
• The greater the level of need, the more willing a consumer is to buy it even the price increases, making the demand more price inelastic for emergency painkillers.
• The greater the percentage of income spent on the product, the more important price is as a consideration, therefore, demand is more price elastic for products like Mortgage payments v clothes.
• If the coefficient of price elasticity of demand is greater than 1, it indicates price elastic demand, meaning a small change in price leads to a relatively larger change in the quantity demanded.
• Consumers are highly responsive to price changes, and a price increase will likely result in a decrease in total revenue for the seller, while a price decrease may lead to an increase in total revenue.
• If the coefficient of price elasticity of demand is less than 1, it indicates price inelastic demand, meaning a change in price causes a smaller % change in quantity demanded.
• Consumers are less sensitive to price changes, for example, a 20% rise in price might lead to only a 5% contraction in demand.
• In this case, a price rise will increase total revenue.
• Necessities like food and medicine often exhibit inelastic demand because consumers are less likely to change their purchasing behavior even if prices change significantly.
• Cross elasticity of demand can be used in product bundling, for example, supermarket meal deals.