Answer to Question #258063 in Macroeconomics for shern ling

Question

Explain what is the level of elasticity (short and long term) in terms of price elasticity of demand for Nestle milo product

Answer 1

If the price of a certain service or good changes by a particular percentage then the percentage shift in the demanded quantity is determined by the price elasticity of demand. In the short run, demand appears to be inelastic since consumers rarely have options or alternatives for different products. Over time-in the long run, consumers have alternative substitutes or choices.

Price elasticity of demand= % of the change in quantity demanded /% of the change in price

In the short run (elasticity of demand)

Demand for Nestle milo products is more inelastic in the short run, that is, low. If consumers are used to buying the Nestle milo products, then they will tend to buy it even when the price goes up-thy do this out of habit. However, when they notice that the price change is permanent, they will tend to spend more energy and time looking for available options to nestle products, therefore, the demand falls.

In the long run

If the price of Nestle milo products changes to a permanent expensive pricing, then the consumers will look for alternatives in order to save money. They might opt for products such as hot cocoa or chocolate. Therefore, the demand for Nestle milo products becomes elastic over time.