Chapter 9R, Problem 2CTQ

To determine

The good that has a high price elasticity of demand.

Explanation of Solution

As luxury goods or non-essential goods are very price sensitive, therefore the demand for luxury goods is relatively high price elastic due to the availability of competitive substitutes. People purchase these kinds of goods when the price of goods falls and they avoid or postpone the purchase of these goods when the price rises. This happens because there is a number of competitors in the market who provide other alternatives at lower costs and consumers shift purchases to other alternatives or substitute goods.

For instance, people can avoid or postpone the purchase of high-end automobiles, jewelry, etc. until the price of goods is within their budget because these goods are not necessities for them but are for their comfort and pleasure in life. Therefore, they can purchase other substitutes or alternatives such as they can buy normal or economy vehicles, and they can wear artificial accessories rather than spending a large amount on jewelry.

Therefore, luxury or non-essential goods are highly priced and elastic.

Economics Concept Introduction

Price elasticity of demand refers to the measure of how demand is sensitive to price or how a change in price affects the change in demand.