Answer to Question #216393 in Marketing for Ahmed Khan

Question

Explain if the demand for a product is highly elastic, the company can easily change its prices. True or False? Explain it with a good example?  

Answer 1

False, if the demand for a product is highly elastic, the company cannot easily change its prices. A high elastic product in response to price means that a small change in price leads to a high change in the quantity demanded of the good. The product has similar substitutes that the consumer will immediately buy after an increment in price. An example is market for coffee, cocoa, and tea. If the price for tea is increased then consumers will start consuming either coffee or cocoa and the quantity demanded for tea will reduce drastically.