Question

Analyze the determinants of the price elasticity of demand and determine if the following product is elastic or inelastic.

Toothpaste

In your analysis, explain your reasoning and relate your answers to the characteristics of the determinants of the price elasticity of demand.

Answer 1

Toothpaste is likely to have inelastic demand due to it being a necessity product with relatively few close substitutes.

Step-by-step explanation:

The price elasticity of demand measures how sensitive the quantity demanded is to changes in price. It is determined by several factors:

1. Availability of close substitutes: Products with many close substitutes tend to have elastic demand, as consumers can easily switch to alternatives if the price increases.
2. Necessity or luxury: Necessities like toothpaste tend to have inelastic demand, as consumers are less sensitive to price changes for these products.
3. Time: Demand for toothpaste in the short-run is more likely to be inelastic, as consumers may consider it a necessary product. However, in the long-run, demand may become more elastic as consumers have more time to adjust their preferences and habits.

Based on these determinants, toothpaste is likely to have inelastic demand, as it is a necessity with relatively few close substitutes.