Nov 07 2008
From heart transplants to watermelons: Understanding price elasticity of demand
Published by Jason Welker at 6:51 pm under
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WikipediaConsumers are interesting creatures to study. Economics offers us a unique set of tools for understanding the behavior of consumers in various markets. Elasticity is one of those tools, one which helps us understand how consumers will respond to the change in price of some goods more or less than others. Some of the questions about consumer behavior elasticity helps answer are:
- Why do governments place such huge taxes on cigarettes?
- Why did Apple cut the price of the new iPhone in half from the original one, despite the fact that it had so many new features?
- Why do movie theaters seem to raise their prices so steadily over the years, rather than doubling the price of tickets each year?
These and other questions can be answered by knowing something about the relative price elasticities of demand for the goods in question. Price elasticity of demand refers to the sensitivity of consumers to a change in price. For some goods, even the slightest increase in price will scare consumers away, while for others, price can go up and up and up and the quantity demanded won’t budge!
Here’s just one illustration of a good for which consumers are extremely sensitive to changes in price: Every autumn, around the city of Shanghai thousands of small farms harvest the Chinese watermelon, a small, green, juicy melon that looks and tastes the same regardless of which farm it came from. The farmers sell their melons to one of the hundreds of melon vendors who drive their big blue trucks into the city of Shanghai during about two weeks in October to sell the watermelons to the city folk who love their refreshing taste.
During the two weeks of the melon harvest, there are hundreds of blue trucks parked two or three per block all over the city. The hundreds of melon vendors sell an identical product, acquired at identical costs from thousands of farms using identical techniques for farming. In other words, the melon market in Shanghai during these two weeks is close to being perfectly competitive.
The price of melons is established through competition at something very close to the exact cost to the vendor of getting the melons into the city. Consumers know this, and therefore if one vendor tries to sell his melons for more than the equilibrium price, consumers will respond by buying NONE of that vendors melons. Conversely, if a vendor were to lower his price at all, rationally EVERY consumer would want to buy from that vendor, but since the price is already at the cost to the vendor, no vendor is able to lower the price without losing money. The outcome in the market for melons in Shanghai is that demand for melons is close to being perfectly elastic, meaning that consumers are completely sensitive to changes in price of watermelons.
Not all goods are like watermelons. In fact, for some goods demand is close to perfectly inelastic. Study the graph below, showing the relative elasticities of five different products, then answer the questions below in your comment!
Discussion Questions:
- For which product is demand pefectly inelastic? Perfectly elastic? Unit elastic?
- What relationship exists between relative slopes of demand curves and elasticity?
- What are two characteristics of cigarettes that make demand for them inelastic?
- What are two characteristics of heart transplants that make demand perfectly inelastic?
- What are the characteristics of a good for which demand is perfectly elastic?
About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. Jason was an international school student in Malaysia before studying economics at Seattle University then earning his Masters in Education. He calls Seattle and Northern Idaho home. In addition to maintaining an economics wiki and this blog for economics student and educators, Jason also gives presentations on using Web 2.0 tools in education at workshops and conferences around the world. His economics wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards". Related posts:
- The role of advertising in determining price elasticity of demand
- McAfee on Price Discrimination: a must-read for teachers of Microeconomics
- Someone help me, I’m “addicted” to air travel!
- Calculating the price elasticity of supply of natural gas
- Lesson plan: Elasticity, exchange rates and the balance of payments – understanding the Marshall Lerner Condition
Teachers!
Submit your Econ questions here. Replies will be posted to the blog
The product that is perfectly inelastic is heart transplant; the D3 curve is illustrated above as a perfectly vertical line. This means that if the price of the surgery were to increase, it would not affect consumers at all since it not an optional procedure; either you take the surgery or you die. This is one characteristic of heart transplant being perfectly inelastic. Therefore, inelastic means irregardless of all costs, the product will be bought.
The curve that is perfectly elastic is D4, watermelons; if its price were to change even slightly, it would affect consumers greatly and might even prevent them from buying the product.
The curve that is unit elastic is D5, which is movie tickets. The percent change of quantity over the percent change of price is equal to 1; they move at the same rate.
A characteristic that would make cigarettes inelastic is definitely their addictiveness; the price of cigarettes can increase but they will still be bought because people are genuinely addicted to them and have to buy them. Another characteristic could be the peer pressure or appearance of fitting in to society.
If a good is perfectly elastic, however, it is purely for optional goods and not mandatory ones. One characteristic for elastic goods is that they have substitutes; it is not the only product of that sort on the planet.
Heart transplant is perfectly inelastic demonstrated by the perfectly vertical curve. The demand for water melons in autumn in Shanghai is the opposite, it’s perfectly inelastic. Movie tickets are an unit elastic good as the perfectly vertical line shows us.
We can see if a product is inelastic, unit elastic or elastic through the steepness of the demand curve. If it is perfectly diagonal from the top-right to the bottom-left, then the good or service is unit elastic. If the demand curve is between a perfectly diagonal and a perfectly vertical line, then the product is inelastic. if the demand curve is between a perfectly horizontal and a perfectly diagonal line, however, the demand for the good or product is elastic.
The demand for cigarettes is inelastic due to the addictiveness of the product as well as the fact that they are relatively cheap which means that they make up only a small amount of ones income and even people with a not so high income can afford them.
Two reasons for the perfectly inelastic demand for heart transplants are the necessity of heart transplantation plus the lack of alternatives.
Characteristics of the perfectly elastic good are: there are substitutes, it is not necessary, it is not addictive and the costumer has plenty of time to compare and choose the right offer.
As illustrated by the demand curve 3, the demand for heart transplants is perfectly inelastic. This is reflected by a straight vertical line; no matter how much price changes, quantity demanded remains the same. Demand for watermelons in Shanghai, on the other hand, is perfectly elastic, demonstrated by a horizontal line. Also, the demand for movie tickets is unit elastic, demonstrated by the diagonal line (slope of -1). The relative slopes of demand curves and their elasticity also seems to be related. The more upright a line is, then the more inelastic it is. The more horizontal a line appears, the more elastic it is. What characteristics causes a product to be inelastic or elastic? Take into consideration cigarettes and heart transplants, which are very inelastic. Cigarettes are inelastic because they’re addictive and also because they represent a small proportion of many smokers’ incomes, making price increases appear insignificant. Heart transplants are perfectly inelastic because it is a necessity for people that need it and also because no substitutes exist. No matter what the price, quantity demanded for heart transplants will always be the same, represented by the vertical line. Elastic goods can vary greatly, but tend to follow similar characteristics. They can have a high number of substitutes, represent a greater portion of consumers’ incomes, or be a luxury item. In addition, if consumers have more time to plan a purchase, then that product becomes more elastic.
Heart transplants (D3) are perfectly inelastic, its demand curve stays vertical because at whatever price, the quantity demanded will not change, since the insurance will pay for the transplant. Therefore, a product that is perfectly inelastic is something where the quantity demanded does not respond to a change in price. On the other hand, the watermelons sold during the high season in Shanghai (D4), are perfectly elastic, since if there is any change in price, no one will buy at that seller, because there is so much competition. The line demand line is horizontal, basically at the equilibrium price, and if the producer cannot produce the watermelons the most efficient way, they will not survive in that market, since they will not be able to sell at the equilibrium price. Movie tickets (D5) are unit elastic, its quantity demanded directly reflects the price, and if the math is done to find the product’s elasticity, it would equal 1.
There is a relationship between the relative slopes of demand curves and elasticity because the law of demand always plays a part. Some people just can’t pay for a product if its price increases, unless it is paid for by ones insurance.
Cigarettes are inelastic because they are addictive, and they are not such a large proportion of peoples’ income, leading most people to continue buying cigarettes even when the price increases. Two examples of heart transplants that make them perfectly inelastic, is that there are no substitutes, other than death, which also make them a necessity. When a product is perfectly elastic, there are mainly many substitutes, and it may also be a large proportion of one’s income, a luxury, that people can live or learn to live without. All these determinants of how a change in price affects the quantity demanded of a product are used by companies to set or change the prices of products in a manner that increases consumer surplus (profit).
Heart transplant is the ideal perfectly inelastic product. Firstly, because it is has no substitutes, which is one of the determinants of price elasticity of demand. If you think about it, there really is no substitutes for a heart, so the patient has no option but to pay for it, regardless of the price, which leads me to the next reason why a heart transplant is perfectly inelastic. It is clearly a necessity, no person in their right mind would buy a heart as a luxury. For that reason, the slope of a perfectly inelastic product is vertical. It can have any price change and still there would be no change in the consumer’s responsiveness.
Cigarettes are also inelastic for other reasons. They are addictive, so regardless of any sudden price changes, most of the consumers will continue to pay for cigarettes. There are not many good substitutes for cigarettes also. (A cigarette patch or a smoking pipe is a close substitute) So the consumers have an only choice of continuing to pay for these cigarettes, or not(and give up smoking).
A perfectly elastic product has many or one perfectly competitive substitute. The melon vendors scenario is a very close example to a perfectly elastic product. A soon as one of the vendors lowered their prices, they would lose all their consumers , or at least the rational ones.
In the heart transplant market elasticity is perfectly inelastic. No matter how big the price change or whether it rises or drops, the demand for heart transplants will stay exactly the same. Even if heart transplant costs were to half, demand will not increase. Same response will come to a double increase in price, patients’ will demand the heart if their lives depend on it, which is usually the situation. An example of a perfectly elastic market exists in the black market in Spain where immigrants sell the same pirated DVD copies on the streets. Since they all set out their sheets with the pirated DVD’s right next to each other, they all sell at the same price. If one seller were to raise his price even the slightest bit, no one would buy anything, assuming they are rational consumers. If any seller were to lower his price all customers would buy from that seller alone. In this blog the perfectly elastic market is the watermelon market which works in a similar way to the black market for DVD’s in Spain. A unit elastic market would be one where a percentage change in price for a product would bring the same percentage change in quantity demanded and vice versa. In this case the product is movie tickets. It is represented by line D5 which is a perfect demand curve and has a slope of 1.
Cigarettes are addictive and therefore a necessity, this makes their demand inelastic. Heart transplants are a necessity and there are absolutely no substitutes.
The characteristics of a product with perfect demand elasticity is that there are no substitutes and the market is perfectly competitive.
Goods which are inelastic will be bought by consumers, no matter what the price (to some extent). An example of inelastic goods are cigarettes. Consumers are not sensitive to a change in price. The reason for the inelasticity of cigarettes is that its addictive. Consumers will keep buying, probably even if the price doubles. The demand for heart transplants are also perfectly inelastic, like cigarettes there are no substitutes so the consumer will probably accept any price. Another determinant for the perfectly inelastic demand of a heart transplant is that it is the only solution and, in most cases urgently needs to be performed. on the contrary there are goods which are perfectly elastic. This means that there are many other substitutes for the good, so if the price increases a tiny bit the consumer, because they are very sensitive to the movement of price, will buy a different good.
The perfectly inelastic product is the heart transplant for they are a necessity not a commodity. You have to acquire a new heart no matter what the circumstances for your life depends on it. Although you have to make the point that even heart plants cannot be perfectly inelastic for at some point the price could be too much for most people and quantity demanded will decrease. The perfectly elastic product is the watermelon, for among other things there are thousands of perfect substitutes. You can just visit another vendor. The unit elastic product is the movie ticket. This means that the percent change in quantity demanded is exactly the same as the percent change in price.
The degree of elasticity however cannot always be determined by the degree of the slope on the chart. The x-axis might be skewed in such a manner that an inelastic good may appear as elastic and vice versa. You must be careful the x-axis does not fool you.
The two major characteristics that make cigarettes inelastic are the proportional income and their addictive properties. A cigarette is relatively cheap and has little effect on your income so a raise in price is hardly noticeable. But its addictive properties are what make it mostly inelastic for they become a necessity instead of a luxury good and people sensitivity to price change decreases dramatically.
The two main properties that make heart transplant perfectly inelastic are its lack of substitutes and the fact that it is a necessity. There is nothing that can replace a heart so if your heart fails there is little you can do if not demand for a new one. The fact that without a heart you cannot live makes a necessity.
To be perfectly inelastic a product would need to have the following properties: it would need to have many perfect substitutes; it would be a miniscule part of your income; it would need to be a luxury, not a necessity; and finally it could not have any addictive properties.
Heart transplants is perfectly inelastic because no matter the price the people who need it will want it and if it is cheaper no one more will want it. On the other hand watermelons is perfectly elastic because the consumers have so much competetion to chose from that the price is impossibel to change. MOvie tickets are unit elastic because they are very even while having substitues it is a low proportion of income so they cancel eahcother out and make it pretty elastic resulting in unit elasticity.
Cigarretes are inelastic because they are addictive and also a low proportion of your income.
Heart transplants are inelastic because they have no substitues and are a necessity.
When demand is perfectly elastic it has no substitutes, is a low proportion of income, a necessity and addictive, and not a lot of time has passed.
Though I have come to this Blog post much to late to say anything origional, and no one has written anything provocative or wrong, I will try to put an origional and clear perspective on things.
The heart transplant is clearly shown as being perfectly inelastic. No matter how much it costs, if you need a new heart or you will die, your going to pay it since their are no substitutes and no time to invent them. Up untill the point where its physically impossible to purchase it the demand will be inelastic, even at 1 dollar a heart, the demand wont go up, since people wont need a heart just because its cheap.
For obvious reasons (as in, the article stated them alwready) the watermelons are perfectly elastic since at a higher price virtually no one will purchase them, but at any lower price they will be demanded beyond what supply can provide (enormously). This is because of the close competition with a precise substitute.
The Movie tickets are unit elastic, this means that no matter at what price the company sets they will be getting the same amout of revenue and are therefore indifferent to the price. The only specification is the limited seats they can offer. They will then using the supply curve make sure that they set the price at equilibrium point in order not to loose any revenue due to not having enough seats to satisfy demand.
Cigarettes are very inelastic due to their addictive nature and lack of serious substitutes (patch? cigars?). Once hooked, a consumer can but complain about the price, but must still pay it. Only when the price begins to become a large % of a consumers income and when the consumer has lots of time to try to reduce his or her consumption, does the quantity demanded change.
The iPhone however is very elastic due to the multitude of substitutes. There is no addiction (physically) and it’s a quite expensive luxury good. The way it has to compete in the market is such that the consumer demand will drop sharply if the price increases and spike if the price goes down. in deciding where to set the price the company must consider at what point the total revenue is the greatest and where the equilibrium price for that point is.
When a good is perfectly inelastic, in this case the heart transplants, then it does not matter by how much the price is changing, the quantity demanded will always stay the same. That’s because heart transplants have no subsitutes, and it’s a necessity for some people, so there is nothing else that could be used instead of it.
The product which is perfectly elastic are watermelons. As described before if one seller would raise the price, nobody would buy watermelons from him anymore, because the buyers would go to other sellers who sell for a cheaper price. On the other hand the sellers already sell at their lowest prices, so if a seller would lower the price of watermelons, of course everybody would come and want to buy them from him, but he wouldn’t gain any money.
The movie tickets have a unit elastic demand, which means that when the price changes, the quantity demanded will change by that same amount.
Cigarettes have an inelastic demand because they are addictive. Also there are not really substitutes for cigarettes which causes that if the price of cigarettes increases, the quantity demanded will not change by a lot, because some people can not live without them.
Hart transplants are perfectly inelastic which is reflected by the straight vertical line. It means that the quantity demanded is completely unresponsive to price changes. Watermelons are perfectly elastic, displayed by the horizontal line. The movie tickets are therefore unit elastic because when the % of quantity demanded changes the % of the price changes equally.
Relative slopes of demand curves and elasticity relate to each other. The steeper the curve is the more inelastic is the product. However, the more horizontal the curve is the more elastic it is.
A characteristic of cigarettes that make the demand for them inelastic is for example the Addiction. Therefore are cigarettes a necessity which makes the demand inelastic. However another reason might be the peer group pressure for (mainly) teens (to feel accepted in society).
The main reason why heart transplants make demand perfectly inelastic is because it is a necessity. If you don’t get a new heart you will die pretty soon. Furthermore there are no substitutes for a heart transplant.
Characteristics of a perfectly elastic good are that these kinds of goods have substitutes; some perfectly elastic good represent luxury and they are not a necessity.
The demand is perfectly inelastic for heart transplants, which is illustrated on the graph as a vertical line. This means that consumers are completely unresponsive to a change in price of the product, which makes sense because either they get a heart transplant, or they die. The demand is perfectly elastic for watermelons, which is illustrated on the graph as a horizontal line. This means that consumers are completely responsive to a change in the price of watermelons because if one seller of watermelons starts to charge a higher price, ALL consumers will buy their watermelons from a different seller. The demand for movie tickets is unit elastic, meaning that the change in price is proportional to the change in demand for that product.
The demand for cigarettes are inelastic because they are addictive, meaning that people are still willing to pay for cigarettes even if the price increases. Because of their addictiveness, cigarettes are also a necessity in the lives of smokers, which contributes to the inelasticity of the product.
The demand for heart transplants is perfectly inelastic because there are no substitutes, and it is a necessity.
A demand is perfectly elastic if the demand for a product at equilibrium price is infinity. As soon as the price changes, however, the demand will drop to zero.
For which product is demand pefectly inelastic? Perfectly elastic? Unit elastic?
The product that is considered to be perfectly inelastic would be heart transplants, which would be curve D3. Heart transplants are perfectly inelastic. Patients that are in need of a heart transplant, do not have an option, they either get operated or they die. These types of patients will always buy heart transplants, no matter how high the price would increase. The consumers depend on this product, therefore they have no choice.
The product that is perfectly elastic would be the watermelons, D4. Watermelons generally taste the same, look the same and even have almost the same prices. There is a perfect competition outside considering watermelons. Watermelons are perfectly elastic, since consumers can choose which farm they would like to buy their watermelons. If one of the farms increases the price, the consumer will react and the demand will automatically drop down to zero. On the other hand, if a producer decides to decrease the price of watermelons, many consumers will decide to buy at this particular farm. Consumers are highly sensitive to prices when a product is almost perfectly elastic.
The product that is unit elastic would be the movie tickets, representing the curve D5. When a product is unit elastic, then any change in price, whether big or small, triggers the exactly the same percentage change in quantity.
What relationship exists between relative slopes of demand curves and elasticity?
The relationship between relative slopes of demand curves and elasticity is that the law of demand plays a huge role in both of the curves.
What are two characteristics of cigarettes that make demand for them inelastic?
Two characteristics that make the demand for them inelastic would be their addiction. Consumers will continue buying cigarettes, since to them it is an inelastic good. The addiction “forces” the consumer to buy new packs of cigarettes each time. If the price of the cigarettes slightly increases, it will not have an affect on the consumers, they will continue buying them regardless.
Another characteristic that makes cigarettes inelastic would be that the cigarette does not have many substitutes. Even though there are substitutes on the market like cigares, pipes etc., they do not taste the same as cigarettes. Once the consumer is addicted to the cigarette, they will buy more of them. Unless the cigarette starts to get rid of a large proportion of the income.
What are two characteristics of heart transplants that make demand perfectly inelastic?
Two characteristics of heart transplants that make the demand perfectly inelastic would be that they are necessity to certain consumers. As stated before, if the consumer does not receive the heart transplantation, they die. Another demand that makes the heart transplantation perfectly inelastic would be that there are no substitutes. If consumers need the heart transplantation they do not need any other product or service.
What are the characteristics of a good for which demand is perfectly elastic?
Demand for a good that is perfectly inelastic would be that if the price stays at its equilibrium consumers will buy an infinite amount of this product. However, as soon as the price increases the demand will drop to zero and no consumer would want to buy this particular product anymore.
1. Cigarettes are almost perfectly inelastic but heart transplants are perfectly inelastic. Watermelons are perfectly elastic. Movie tickets are unit elastic.
2. As the demand line reaches more than 45 degrees and even starts to raise, the more inelastic the product is. As it reaches less than 45 degrees and lessens, the more elastic the product becomes.
3. Prices don’t change a lot and they are addictive. This makes them inelastic.
4. They save lives so people need them. Also they are very expensive in the first place so a raise in price doesn’t mean that much.
5. They don’t need to be bought therefore a raise in price changes the demand very much. Also they are already low priced, making the change in demand overly proportionate.
1.Heart transplants (D3) are demand perfectly inelastic. Watermelons are perfectly elastic (D4). Movie tickets (D5) are unit elastic.
2. If the curve has a gentle slope, demand is price elastic. If the curve has a steep slope, demand is price inelastic. If the line is horizontal, demand is perfectly elastic. If the curve is vertical, demand is perfectly inelastic.
3. The demand for cigarettes is inelastic due to addictiveness, consumer need them. In addition, the price of cigarettes is not that high so most people can afford even though they are not wealthy enough.
4. Heart transplants are necessary goods and have no substitutes.
5. If a good is only demanded at one particular price demand is said perfectly elastic. That is, a small change in price will cause quantity demanded to fall to zero. It is not necessary and has lots of substitutes.
Heart transplants are perfectly inelastic, watermelons are perfectly elastic, and movie tickets are unit elastic.
When goods or services are inelastic, their relative slopes of demand curve will be very steep as there is only a small change in the quantity demanded, the steeper the curve, the more inelastic it is. Thus when it is perfectly inelastic, it will produce a straight vertical line. When goods or services are elastic, their relative slopes of demand curve will be more flatter as there is a huge change in the quantity demanded, the flatter the curve, the more elastic it is. Thus when it is perfectly elastic, it will produce a straight horizontal line.
Cigarettes are inelastic because they are only consumed by addicts who continuously have the need to purchase them time to time. This means that they do not care about price changes which makes them less responsive to such situations. Thus another characteristic will be that addicts will consider cigarettes as a necessity. Which means that even when price rises, they will purchase cigarettes because they cannot live without them.
Heart transplants are perfectly inelastic because there is no other alternative choice to be considered, in other words there is no substitute. It can also be regarded as a necessity for those who really need it. Before moving onto the procedure of heart transplants, an operation is considered. However sometimes operations cannot be performed and so people will have to rely on heart transplants.
Elastic products or services tend to be something that is not needed for people’s survival and so it is more of a want than a need. This relates to luxury goods which are known to fulfill one’s desires but it does not necessarily include addictive goods. Another characteristic will be its number of substitutes. The more substitutes, the more elastic will be the demand for the product.
1) Heart transplants (D3) are demand perfectly inelastic. Watermelons(D4) are perfectly elastic. Movie tickets (D5) are unit elastic.
2) For a unit demand curve, the line and the x-aixs, y-aixs make a 45 degree angle. For a elastic demand, the angle is less than 45 degree. For a inelastic demand curve, the slope is steeper than unit demand, and the angle is more than 45 degreen. The slope for perfectly inelastic demand curve is vertical. The slope for perfectly elastic demand curve is horizontal.
3) The demand for cigarettes is inelastic due to the addictiveness that makes cigarettes become necessary for some people.
4) The necessity of heart transplants and there are few substitutes for it.
5) At a particular price, P1, the quantity demanded is infinite, but if the price, P1 changes, the demand will drop to zero.
1. Heart transplants, which are D3, are perfectly inelastic. Watermelon, which is D4, is perfectly elastic. Movie tickets which is D5 is unit elastic
2. If the curve is horizontal, demand is perfectly elastic. If the curve is vertical, demand is perfectly inelastic. If slope of the curve is low, it’s elastic. If slope of the curve is high, it’s inelastic
3. This is because consumers need them. And the price of cigarette is relatively low compared to its quantity demanded.
4. This is because it has no substitute and requisite things
5. The reason is that goods is not necessary and has many substitutes.
1. Heart transplant is perfectly inelastic. Watermelon is perfectly elastic. Movie tickets are unit elasticity.
2. A slope of 45 decrease means that the product are unit elasticity. The smaller the angle, the more elastic the product. The bigger the angle, the more inelastic the product.
3. Cigarettes are inelastic because at most of the time they are consumed by addicts who continuously have the needs for them. It is a special case in which they are hardly responsive to the price of the cigarettes. Which means that even if the price rises, they would still purchase them in a similar amount.
4. Heart transplants are perfectly inelastic because they are necessary goods and there are no substitutes for them.
5. Elastic products tend to be more of a want than a need, so people do not really need it to survive. This can happen when the market is intense and highly competitive because of the many substitutes. The more substitutes, the more elastic the product will be. Another example of a high elastic product is luxury goods, which is to fulfill people’s desires and snob value, something that is not really necessary.
A perfectly inelastic demand is the one that will not change no matter what the price is. In our case, the demand for heart transplants are perfectly inelastic because people need them otherwise they will die. At the same time, the consumers do not have a choice if they will have a heart transplant or not, regardless of the price, so they also will not desire to have it if the price was lower. As a result, the quantity demanded is not going to change at all. As we can see, the slope for heart transplants is a vertical line; no matter what the price is, the quantity demanded will not change
On the other hand, a perfectly elastic demand is the opposite of a perfectly inelastic; any modification of the price is going to generate extreme changes in the quantity demanded. The watermelons are an example of a perfectly elastic product because a change in their price is going to make either everyone or no one buy them. Due to the huge number of suppliers in the market for watermelons, an increase in the price would make all rational consumers decide to buy from another supplier, and vice-versa. The slope for watermelons in shanghai is a horizontal line since a change in price is going to generate an infinite increase or decrease in the quantity demanded.
The demand for movie tickets is unit elastic, which means that a change in price is going to generate a proportional change in the quantity demanded. As we can see in the slope for movie tickets, an increase of 10% in the price generates a decrease of 10% in the quantity demanded.
For both cigarettes and heart transplants there are pretty similar factors that make them inelastic. Both are considered necessary for the consumers. In the case of cigarettes, they are addictive so people need to buy them whatever the price is. Smokers have a psychological and physical need for cigarettes, and they think that without cigarettes they will not survive. The same thing happens to heart transplants, and the only difference is that people are sure that they cannot survive without them. As a result, people are not able to chose if they want it or not, and the market for it becomes extremely inelastic. Another thing that makes the markets for these products inelastic is that they do not have cheaper substitutes. There are no other products that are cheaper and can replace cigarettes or heart transplants.
A good which has an elastic demand is a good that is not necessary or important for the consumers. These may be luxury products, products that have many other substitutes or that are not considered to be really worth their price. Additionally, products with elastic markets tend to be relatively cheaper than other products. This happens because firms that work in elastic markets will get greater revenues if they lower the price of their product.
For heart transplants demand is perfectly inelastic, watermelons are perfectly elastic, and for movie tickets demand is unit elastic.
The relative slopes of demand curves on the same set of axes show the relative elasticities of the products. This means that if the axes are labeled differently, then the slopes of products that have the same elasticity would be different. Therefore, it is the relative slopes of demand curves allow the elasticities of different products to be compared.
Cigarettes are inelastic because they are addictive and no real substitute exists that has the same effect for consumers. Heart transplants are perfectly inelastic because they are an absolute necessity and there is no substitute that will save the patient’s life. A good for which demand is perfectly elastic, such as watermelons in Shanghai, will have many substitutes that can replace the product perfectly and are a luxury.