Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

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Business

Kristen Kim

2 January, 06:17

Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

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Answers (1)

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Precious · Answer 1

Quantity demanded of matches will remain unchanged, Quantity demanded of tomatoes will rise

Explanation:

Law of demand states that there is an inverse relationship between price of a good and it's quantity demanded, keeping other factors affecting demand as constant.

Price elasticity of demand refers to degree of responsiveness of quantity demanded of a good with respect to a change in it's price.

In the given case, price elasticity of demand for matches is inelastic since requirement of matches is fixed and consumer won't buy additional matches if the price is reduced. Thus a price decease will not increase the quantity demanded of matches.

On the other hand, tomatoes have various uses and thus, their demand is elastic. So if price of tomatoes drops, the quantity demanded of tomatoes would rise, keeping other factors affecting demand as constant.