EGT1 Task Two

A-Elasticity of Demand can be defined as the varying degree of demand of a service or good, with respect to its price fluctuation. In most scenarios, a drop in price can result in an increase and demand, and vice versa. Most secondary and tertiary needs will be subject to increased elasticity, however primary needs remain unchanged in most scenarios. High price elasticity indicates heavy dependency on price in determining demand. High price inelasticity is the precise opposite—when demand remains the same throughout price fluctuation, it’s demonstrative of inelasticity. Unit elasticity of demand occurs when proportionate shifts in price and demand are noted.

B-Cross-price elasticity can be defined as the varying degree of demand in complementary or supplementary items as driven by price. When the price of one item is reduced, demand for a supplementary product increases. The increase in price in one product or service can impact complementary products or services accordingly as well. This makes sense, as the demand for a supplementary/complementary item is directly affected by the demand for the primary item. As an example, snowboards and snowboarding boots are complementary to each other. If snowboard prices dramatically dropped, demand for boots will increase. When substitute products are considered, this changes things. If milk prices soared, consumers may opt to purchase toaster pastries in lieu of cereal, opting for a lower priced product which still meets their needs.

C--Income elasticity can be defined as the varied degree of demand of services or products based on the income variations of a population. Normal and inferior goods, luxury and necessity items, will have varied levels of demand based on the income of the consumer market. An example of this is a consumer’s selection of store brand items instead