Final answer:
Yachts are more price elastic compared to chewing gum because as higher priced goods, consumers are more sensitive to price changes. Inexpensive items like chewing gum tend to have a less elastic demand as their low cost and necessity mean consumers are less responsive to price changes.
Step-by-step explanation:
The question at hand is which product is more price elastic: yachts or chewing gum. Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. Higher priced goods, like yachts, tend to be more price elastic because consumers will be more responsive to changes in prices.
Additionally, the concept of elasticity extends to how firms deal with rising costs. For addictive substances with inelastic demand, like cigarettes, firms can pass on the higher costs to consumers. This is because consumers are less sensitive to price changes due to the addictive nature of certain products.