Elasticity
Institutional Affiliation
Question one
The increase in the price of gasoline cases decreases in consumption explains an excellent scenario of price elasticity of demand (PED). PED measures and explains the effects of changing the prince of a commodity to its demand. As seen in the case of gasoline, PED offers a change in the percentage of product demand in response to a change in the percentage of the price. About all price, elasticity exists as negative based on facts that increasing the price of the commodity would always decrease its demand. An increase in gasoline prices leads to a decrease in sales of SUVs based on their level of fuel consumption. Increasing the prices of gasoline reduces the level of demand and hence subsequent SUVs that consume a higher amount of gasoline. However, gasoline occurs as an inelastic commodity in most of the countries; thus, its increase or decrease in price possesses little impacts on the demand. Moreover, some sectors like companies dealing with SUVs experience its effects due to the drop in the sale.
Question two
The elasticity of the two products exists as cross-price elasticity of demand in which the changes in one item changes the price of another product. The cross-price elasticity of demand involves the in most cases possess the negative cross-price elasticity. Based on this concept, an increase in the price of one product leads to a drop in the need for another good, as witnessed in the case of pizza and beer. As seen in the case of pizza and beer, increasing pizza price by10% results in a drop in its demand as well as that of beer. The nature of the two products, pizza and beer, and various research works indicate people tend to consume both items at the same time. For instance, in most cases, after drinking beer, people always possess the urge to eat first foods such as pizza and wings, but a high percentage prefer pizza. In most of the beverage outlets, most people pair bee with pizza hence leading to cross-price elasticity demand. As a result, the increase in prices of pizza would lead to a drop in demand od both pizza and beer.