Price-Elastic Products - Essay Example

Consider the example of the cell phone market. It is one of the best examples of price elastic products. We can see lots and lots of new cell phone models flooding the markets from different makers. There is no possibility of increasing the price of cell phones due to high competition. On the other hand, more advanced cell phone models with significantly advanced features come at a very low cost. In fact, the cost of cell phones is a constant decreasing curve. A slight increase in the cell phone leads to a great decline in the market demand.

Fig.1.1 Graph of Price vs Qty. demanded (a) inelastic and (b) elastic goods (Jason Welker, 2008) The amount of change in demand corresponding to change in price for price-elastic as well as price-inelastic products can be well understood with the help of these graphs (Fig.1.1). Consider a price-inelastic product (e.g. Petrol). When the price is raised from P2 to P1, the amount of change in demand (Q2-Q1) is very small compared to the price rise (P1-P2).

This is the case of monopoly. Now, consider a price-elastic product (e.g.). The competition for market share is very high in this case. So, a small rise in price (P1-P2) may lead to a considerable decline in demand (Q2-Q1). The vice-versa is also true. It means that when a firm decreases its price from P1 to P2, there is a significant increase in demand and hence the market share. This is the main reason for the reduction in the prices of electronic goods and other price-elastic products.