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Between cable television and apartment rentals, which is likely to have the greatest...

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yaga49 | Valedictorian

Posted April 25, 2013 at 2:57 PM via web

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Between cable television and apartment rentals, which is likely to have the greatest price elasticity of demand? Why?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 25, 2013 at 3:18 PM (Answer #1)

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Price elasticity of demand refers to how much the quantity demanded for a product changes when its price changes.  With some products, the price can go up and quantity demanded will only drop a little bit.  Such products have demand that is relatively inelastic.  With other products, a similar increase in price will lead to a major drop in quantity demanded.  The demand for such products is relatively elastic.

One major factor that determines how elastic demand will be is the degree to which a given product is necessary.  If the product is not necessary, you may well decide to go without it if the price goes up.  If it is necessary, you will continue to buy it.  Therefore, products that are necessary typically have inelastic demand.

This is why the demand for cable TV will be more elastic than the demand for apartment rentals.  People need to rent apartments.  They have to live somewhere and apartment rentals make sense for many people.  By contrast, cable TV is not so necessary.  You can entertain yourself in many other ways than through cable TV.  Therefore, if the price of cable rises, you are more likely to stop buying it than you are to stop renting an apartment.

So, we can say that cable TV has demand that is more elastic than the demand for apartment rentals.

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