Posted: December 21st, 2015
2-1 Discussion: Demand Theory
Select a product and discuss factors that affect its price, income, and cross elasticity of demand.
For example, if you select “table salt”, you could argue that since its price is low relative to income and it is generally considered a necessity, it has very inelastic price elasticity of demand. It has low or close to zero income elasticity of demand because people do not tend to consume more of it as income rises. The cross elasticity of demand between salt and salt substitutes would be positive because the products are substitutes. Foods that typically are used with salt would be complements, and they would have negative cross elasticity of demand.
In responding to your classmates’ posts, ask questions and discuss other products that have similar features, such as the level of elasticity.
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