Difference Between Price Elasticity And Price Inelasticity

In this particular assignment, there are a number of questions that a student must ask as a gate pass to beginning this particular assignment. What is a “trade-off”? What is price elasticity and how does it affect the markets? What is considered as the substitution effect? A trade-off is a compromise given in order for one to gain something else. It’s more of a balance that comes out of giving one desirable but incompatible item for another equally desirable object. Price elasticity on the other hand refers to the responsiveness of the demand of a commodity to changes in price of that particular commodity. It is using the framework that buyers and sellers are able to manipulate each other into buying or selling through price adjustments. Substitution

Products that have been known to have price inelasticity often have no close substitutes and as such, their changes in prices do not necessarily mean change in quantity demanded. Many of the daily life goods and services such as food have low price elasticity since one cannot go without food. A change in the price of the commodities will not affect the quantity demanded proportionately. For instance, a decline in the price of salt will not trigger you to consume two packets of salt while a rise will not trigger you to buy half a

For instance if it was possible to trade soap for salt and the price of soap falls, then you will need more soap to trade for salt. As such, it is possible to trade salt for more soap resulting to a margin of freed-up income arising from the difference between a unit of soap and a unit of salt. One might get one and a half bars of soap for a kilo of salt than the one bar for one kilo of salt before. As such, the half represents the substitution effect.

In a real life scenario, the price of a Blue Sky natural cola pack of four at Walmart was $43.08 and could be traded for a 4 pack of very Organic Cola soda that cost about $42. However, the Blue Sky Natural Cola underwent a price cut that brought its price to $15.79. As such, it is possible to get over two-four packs of the Blue Sky natural cola by trading one-four packs of the very organic cola soda. The extra bunch of four is a real world representation of the substitution effect. This particular graph illustrates the substitution