Elasticity of Demand in Economics

This document discusses the price elasticity of demand for tobacco products, gasoline, and Starbucks coffee. It also explores the concept of monopoly power in the Australian post industry.

Running head: ECONOMICS
Economics
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Answer 1
The tobacco industry of Australia
Article: Price elasticity of demand for tobacco products - Tobacco In Australia. (2019).
The article states that the tobacco industry is an inelastic one. The elasticity of
tobacco is always less than one. The demand for tobacco is not much elastic in nature
compared to the other products. This states that an increase in the price of the tobacco
products will lead to a slight fall in the demand. Also, an introduction of tax will lead only a
slight change in the consumption of tobacco products. As, smoking is a hard habit to kick, the
demand for cigarettes will be highly inelastic in nature. It can be said that the tobacco product
are known to have price elastic less than one or it can be also said that the tobacco demand is
usually price inelastic in nature (Price elasticity of demand for tobacco products - Tobacco In
Australia., 2019). Therefore, the consumption of tobacco will be decreasing by a lesser
percentage compared to the increase in price. According to the research in US, Finnish and
Canada, it have been found out that a rise in the price in the manufactured cigarettes will lead
to an increase in the sales of the hand rolled cigarettes and the other tobacco products .
Figure1: Relatively inelastic demand of cigarettes

Article: What's the Price Elasticity of Demand for Gasoline?. (2019).
The elasticity of demand for gasoline is inelastic in nature since oil has very less
substitutes. Therefore it can be said that when the price of gasoline will rise, the demand for
gasoline will not change much. The article also states that in the long run, the price elasticity
of gasoline have been found to be -0.58 that also states when there will be a 10 percent
increase in the gasoline it will lead to only 5 percent decline in the gasoline (What's the Price
Elasticity of Demand for Gasoline?.,2019).The oil price is also known to be much volatile in
nature as the demand and supply of gasoline in known to be inelastic in nature. There will be
also limited oil supply that suggests that any disruption in the oil supply will shift the supply
curve to the left that will also lead to rise in price.
Figure 2: Inelastic demand of gasoline
Article: (Why Consumers Might Care About a Starbucks Price Hike, 2019).
The third article is about the elasticity of the Starbucks coffee. Starbucks is known to
have elastic demand as there is large amount of substitutes of coffee. Therefore, when there is
price swings in the market, it will have a huge impact on the buying and for this reason,

coffee is known to have elastic demand. Starbucks is known to have huge competitors like
Dunkin Donuts and McDonalds. The price elasticity of donuts is known to measure the
extent at which the quantity of good demanded changes whenever the price of the
commodities change. When Starbucks will be increasing the price of latte, the competitors
Krispy Kreme, Pan Era Bread and Mc Donald’s will be decreasing the prices for competing
(Why Consumers Might Care About a Starbucks Price Hike, 2019). As the product is elastic
in nature, the quantity of Starbucks coffee demanded will be decreasing when the price will
increase. Starbucks coffee is known to be a luxurious good both in terms of quality and high
price. It is known that, in case of necessities, the demand for goods is inelastic nature and on
the other hand, the demand for luxurious good is inelastic in nature. As Starbucks is
considered to be a luxurious good, the price elasticity will be inelastic in nature.
Figure 3 Elastic demand of coffee
Answer 2
One of the Australian industry which is known to have monopoly power is the
Australian post office. The Australian post is known to have a significant monopoly power in
the industry. The Australian post is kwon to hurt the small business which does not allow the
private postal companies for delivering the parcels to the post office boxes. The anti
competitive pricing of the Australian post is known to hurt millions of small business in

Australia. The article of ACCC states that Australia post is known to impose monopoly over
the delivery of letters which are not more than 250gm and which cost less than $2.40 (ACCC
delivers final decision on Australia Post's business mail prices., 2019). The monopoly market
structure is such where there is only single seller in the market selling a unique product and
the seller faces no competition since he is the sole seller in the market. The Australian postal
business is known to be owned by the government and have also evolved over a number of
decades. The present monopoly structure of Australian post is being created by the
government.
Figure 1 Monopoly market structure
The customers mostly loses from the monopoly power as they do not have the power
to bargain and therefore they are at a huge loss. The firm which operates in monopoly market
structure do not operate in the public interest until and unless are not regulated by the
government. The seller in the monopoly market sells unique product and therefore the seller
faces no competition since he is the sole seller in the market. The Australian postal business
is known to be owned by the government and have also evolved over a number of
decades.The present monopoly structure of Australian post is being created by the

government. Therefore, in that case, this government is known to impose regulations in order
to achieve efficient performance along with fair conduct. The government therefore might
wish to regulate the monopolies in order to protect the consumers from the exploitation. The
monopoly is therefore also termed to be the social evil as they charge high prices and also
does not produce at full capacity to price discrimination.
The Australian post is known to have a significant monopoly power in the industry.
The Australian post is kwon to hurt the small business which does not allow the private postal
companies for delivering the parcels to the post office boxes (ACCC delivers final decision
on Australia Post's business mail prices.,2019). The government might also regulate the
market by imposing tax on the monopoly market. Australian post is therefore known to
exercise a significant monopoly power by not allowing the other private post offices to work.

Reference list
ACCC delivers final decision on Australia Post's business mail prices. (2019). Retrieved from
https://www.accc.gov.au/media-release/accc-delivers-final-decision-on-australia-posts-
business-mail-prices
Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Nelson
Education.
Friedman, L. S. (2017). The microeconomics of public policy analysis. Princeton University
Press.
Jawad, M., Lee, J. T., Glantz, S., & Millett, C. (2018). Price elasticity of demand of non-
cigarette tobacco products: a systematic review and meta-analysis. Tobacco control,
27(6), 689-695.
Price elasticity of demand for tobacco products - Tobacco In Australia. (2019). Retrieved
from https://www.tobaccoinaustralia.org.au/13-1-price-elasticity-of-demand-for-
tobacco-product
Schwartz, E. (2019). Why Consumers Might Care About a Starbucks Price Hike. Retrieved
from https://econlife.com/2018/06/prices-at-starbucks/
Serrano, R., & Feldman, A. M. (2018). A short course in intermediate microeconomics with
calculus. Cambridge University Press.
What's the Price Elasticity of Demand for Gasoline?. (2019). Retrieved from
https://www.thoughtco.com/price-elasticity-of-demand-for-gasoline-1147841

Yohannes, M. F., & Matsuda, T. (2016). Weather effects on household demand for coffee
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