Economics and Electricity as Technological Developments - Assignment Example

The demand for foreign travel is elastic because it is a luxury good and requires a large amount of income to meet expenditures.

The demand for eggs will be inelastic because it is a necessity (food item). For instance, it also takes a low portion of income.

The demand for DVD rentals would be relatively inelastic for a consumer who has a high inclination for movies, dramas, shows, music, etc. Also, it takes a very low portion of income as the rentals are lower than acquisition costs. The demand would be elastic for a customer with no interest in music or entertainment.

Answer 3

If a firm seeks to raise total revenue, then it must consider the impact of three major factors such as price, substitutes, and time on consumers. For instance, the necessities (food, clothing, shoes, automobiles, utilities, communication, transport, internet, etc.) have inelastic demand; therefore, a price increase will lead to an increase in total revenue. However, luxuries (air travel, perfumes, expensive brands, etc.) have highly elastic demand; therefore, the price increase will lead more than proportional decrease in demand and revenue decreases. Next, if a product has greater availability of substitutes in the market then the price increase of a product will lead to an increase in demand for substitutes. Last, if demand for products in the short run is exceptionally high then price hikes will increase revenues because will be unable to change their consumption pattern in the short term.

Answer 4

Electricity has more elastic demand because technological developments have resulted in modern inventions for which electricity for use. Microwave Ovens, Fridges / Freezers, computers/laptops, etc. require electricity and they are the most commonly used products that do not require gas. For instance, electricity is needed by every household for lighting purposes. However, the demand for natural gas becomes inelastic in the short-run such as the winter season when gas becomes essential for heaters, geezers, etc. and it is more difficult to switch to another source as time is of the essence. Nevertheless, the case is the opposite in the long run because consumers can change their consumption patterns and shift to alternatives. Read More