Price Elasticity of Demand in Real-World Scenarios

The assignment delves into the economic concept of price elasticity of demand, examining its relevance in real-world scenarios through a case study of an individual who has shifted from France to Canada. The respondent's consumption behaviors and adaptations are analyzed in light of necessity and luxury goods, highlighting how changes in prices impact consumption patterns.

Running head: MICROECONOMICS ASSIGNMENT
Microeconomics Assignment
Name of the Student
Name of the University
Author Note

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Interview Summary
The concerned assignment tries to explore and explain the economic concept of
elasticity of demand in the real economic scenarios, with the intension to observe the changes
which occur in the consumption patterns and expenditure behaviours of individuals when he
or she migrates from one country to another country, owing to the changes in price levels and
availabilities of goods and services (Cooper & John, 2013). The respondent selected, is an EL
Learner named Justin Manta. Being French by birth Justin has shifted in France a couple of
years ago. For the purpose of completion of the assignment, she was asked questions about
the differences which she observe in the price levels of different essential as well as luxury
commodities between her home country France and the country in which she has been living
in the recent times, France.
To make the questions more targeted and comprehensive the researchers categorized
the same in different sub-groups of commodities like food, clothing, transports, residence and
overall utility commodities, with the aim to study the differences in the prices of these
commodities in these two countries and the resulting changes in the consumption patterns and
expenditure behaviours of the concerned individual (Gospodinov & Ng, 2013).
As can be seen from the assertions of the concerned respondent, she perceives Canada
to be cheaper than that of France, in terms of the overall cost of living, when measured in
terms of the exchange rate of the Canadian Dollars. She also asserts that the level of income
in Canada is in general higher to some extent than that of the same in France, thereby
indicating towards the presence of a higher purchasing power in Canada, as compared to
France (Burstein & Gopinath,2014). There apparently lies no differences in the transport
costs in both the countries as perceived by the respondent though she highlights the presence
of lower cab fares in Canada. On the other hand, according to her, the prices of daily

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necessity foods like cereals and eggs are slightly high in Canada, which is not hurting given
the higher income in the country. The prices of luxury meals are however far cheaper in
Canada than that of France. The resident points towards an exception in this trend, in the
residential rents as the same is significantly higher in Canada than in France.
When asked about the changes and adaptations in the consumption behaviour which
she had to incorporate, she did not point out any such trends but highlighted that she has
increased consumption luxury commodities in Canada than what she used to do in France.
The following section of the essay, tries to analyse and interpret the responses
received taking into consideration the economic theoretical framework of price elasticity
demand.
Price Elasticity of Demand
The concept of price elasticity of demand, as found in the economics theories, refers
to the percentage change in the demand for some commodity or service due to one percentage
change in the price of the same commodity or service (Baumol & Blinder, 2015). The price
elasticity of demand of goods and services can be of two types, which are as follows:
Own Price Elasticity of Demand- This shows the degree of responsiveness of the demand of a
commodity due to one-unit change in the price of the same commodity.
Cross Price Elasticity of Demand- This term shows the degree of responsiveness of the
demand for a particular commodity or service due to one-unit change in the price of any
related commodity, which can be substitute or complement to the commodity in concern
(Nicholson & Snyder, 2014).
The magnitudes of elasticities of commodities vary depending upon their nature and
magnitude of demand as well as importance in the life of people. If with a change in price of

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a commodity the demand for the same gets altered in a lesser proportion than that of the price
change then the commodity is said to be inelastic in demand. On the other hand, if the change
in price leads to more than proportionate change in demand then the concerned commodity is
said to have an elastic demand.
Figure 1: Inelastic and Elastic Demand for commodities
(Source: As created by the author)
In general necessity goods are found to be comparatively inelastic in demand than that
of the luxury commodities. This is because, an increase in price does not decrease the
demand for necessary commodities and vice versa, whereas the demand for the luxury
commodities vary considerably with the change in their prices (Pindyck & Rubinfeld, 2014).
Relevance in the Case Study
The price elasticity of demand, as an economic concept is seen to be relevant to the
responses received by interviewing the concerned respondent. As can be seen from her

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responses, in spite of the prices of eggs, white bread and cereals being high in Canada than
that in France does not hamper the consumption of these commodities substantially. The
participant sees this to be more than compensated by the increase in the purchasing power in
the economy of Canada. On the other hand, the comparatively lesser cost of gourmet foods
and superior food products like meat, enables the respondent to consume them more and to
go more restaurant meals more. The respondent is also seen to avail cabs more frequently in
Canada than that in France (Kreps, 2018).
These behaviours of the respondent can be explained in the light of the price elasticity
of demand of necessity and luxury goods. The goods like rice, bread and eggs being necessity
goods, the change in price does not decrease their demand considerably, on part of the
respondent (Heine, 2012). However, restaurant meals and cab rides being luxuries, a small
decrease in the price of the same enables the respondent to increase the consumption or usage
of the same substantially.
Conclusion
As can be seen from the above discussion, the economic concept of price elasticity of
demand is found to be considerably relevant in the real economic scenarios and is also seen to
have considerable implications on the consumption behaviours of the concerned respondent.
It is observed that the presence of a higher purchasing power in the economy of Canada,
coupled by the lesser prices of luxury commodities in Canada as compared to France, leads to
considerable increase in the consumption of the luxury goods on part of the residents, though
the residents do not seem to curtail on their necessary commodities even though the prices are
little high. This can be attributed to the high price elasticity of luxury goods and
comparatively lower price elasticity of necessity commodities.

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References
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage
Learning.
Burstein, A., & Gopinath, G. (2014). International prices and exchange rates. In Handbook of
International Economics (Vol. 4, pp. 391-451). Elsevier.
Cooper, R., & John, A. A. (2013). Microeconomics: Theory through Applications. Flat World
Knowledge.
Gospodinov, N., & Ng, S. (2013). Commodity prices, convenience yields, and
inflation. Review of Economics and Statistics, 95(1), 206-219.
Heine, K. (2012). The concept of luxury brands. Luxury brand management, 1, 2193-1208.
Kreps, D. (2018). Notes on the Theory of Choice. Routledge.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application.
Cengage Learning.
Pindyck, R. S., & Rubinfeld, D. L. (2014). Microeconomics.