Elasticity of Demand and Consumer Behavior

The assignment discusses the concept of elasticity of demand and its effects on consumer behavior. It examines the differences in price levels of various commodities in Canada and the Philippines, and how these changes affect consumption patterns. The study aims to understand the responsiveness of demand to price and income changes, and how individuals adapt their purchasing decisions accordingly.

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

1MICROECONOMICS ASSIGNMENT
Summary of the Interview
For the concerned assignment, the EL Learner named, Charmaine Galicia (Student
ID: 387612) was interviewed by the researchers. The respondent being from Philippine by
birth, has settled in Canada six years ago and is currently pursuing academics, with the future
aim of venturing in the corporate sector. For the concerned assignment, the respondent was
asked questions (only after taking consent) regarding the economic difference which exist in
both the countries and the changes in the price levels of different commodities which she has
felt after coming from Philippine to Canada (Fink, 2012). The questions specifically
circulated on different types of commodities like foods, clothing, transportation, residence
and other regular things which are usually bought or availed by people in their every day life.
The researchers also aimed to observed the consumption patterns of the concerned respondent
and the changes in the same which have occurred, according to the perception of the
respondent, after her migration from Philippines to Canada.
From the overall study of the responses received it can be seen that the respondent
perceived the overall price levels of the goods and services to be higher in Canada than that
of the same in Philippines, but also backs it up with the fact that the level of earning in
Canada is much higher for an average resident than the level of earnings in Philippines. The
purchasing power according to the respondent is also much higher in Canada than in
Philippines (Baker, 2016). When asked about the advantages of living in Canadian economy,
she points towards the better infrastructures and facilities available in Canada especially in
terms of transport, residence and health care facilities. As can be seen from her statement,
“the health care costs are obviously much higher in Canada, but the government provides
much assistance and subsidies to us, especially the immigrant residents of the country which
makes it easy for us.”

2MICROECONOMICS ASSIGNMENT
The respondent does not find rented apartments to be much costlier as compared to
Canada, however, according to her buying a house in Canada can be hurting. She also
highlights the fact that travelling in local transports and buying monthly passes for the same
can be much affordable than travelling in cabs or buying single tickets every time for local
transports. In terms of foods, the respondent asserts that while the necessary and low-cost
foods are easily available in affordable prices in Canada, the restaurant meals and luxury food
items are of higher price (Burstein & Gopinath, 2014). When asked about the change in the
consumption pattern or difference in the availability of any good or service in both the
countries, the respondent do not highlight any such thing. However, in terms of consumption
behaviour, she comments that she needs to stick to necessity-based consumption as luxury
products are considerably costlier than that of the same in Philippines.
The responses received can be analysed and interpreted in the light of the economic
concepts of elasticity of demand, which can be seen in the following section of the essay.
Elasticity of Demand: Theoretical Overview
In the theoretical framework of economics, the concept of prices elasticity of demand
of a commodity is the degree of responsiveness of the demand of that commodity due to one-
unit change in the price of the same (Baumol & Blinder, 2015). On the other hand, there also
exits another concept of elasticity of demand known as the incomes elasticity of demand,
which shows the degree of responsiveness of the demand for a commodity due to one
additional unit of change in the income of an individual (Pindyck & Rubinfeld, 2014).
Depending upon the nature of the commodity the magnitude of elasticity of demand
of the same changes. The commodity whose responsiveness of demand is much higher as
compared to the change in price is known as highly elastic while that commodity whose
demand do not change as high as the change in the price is known as inelastic good (Hall &

3MICROECONOMICS ASSIGNMENT
Lieberman, 2012). In general, the commodities of daily necessities have inelastic demand as
compared to the luxury commodities which tend to have high own price elasticities of
demand.
Economic Interpretation of the Responses
As can be seen from the interview of the concerned respondent, the concept of
elasticity of demand (both price and income) and their effects on the consumption behaviour
of the concerned respondent are highly observable. The commodities and services are found
to be highly price in Canada when compared in absolute exchange rates of the two countries
(Wu, 2013). The basic food items are found to be 200% costlier in Canada when measured in
terms of Pesos and the price of the same in Philippines in terms of the local currency of the
country. Same goes in the case of transportation as well as clothing and residence. However,
in terms of transport travelling in local transport by one way passes every time can be nearly
1000% times as costly as in Philippines while using monthly pass can reduce the same
considerably (Nicholson & Snyder, 2014).
However, the average salary in Canada (net salary after tax) is found to be almost
700% higher than the same in Philippines, when measured similarly, in terms of exchange
rate between the Canadian Dollar and Philippine’s Peso. Thus, when measured in terms of
purchasing power parity, the purchasing power in Canada is found to be much higher than
that of Philippines, barring the luxury items, which include cab rides, restaurant meals,
branded clothing or gourmet food items (McKinnon & Ohno, 2016).
The impact of price elasticity on consumer behaviour can be seen from the concerned
case, as the respondent is seen to curtail on the consumption of luxury goods and availing of
luxury services and substituting the same with low priced options (Rader, 2014). The
consumption of necessary items like basic foods, cereals, clothing and availing of local

4MICROECONOMICS ASSIGNMENT
transport does not seem to change substantially in spite of the difference of price levels in
both the countries.
Conclusion
The responses of the respondent and the observations derived from that imply that the
demand for necessary commodities does not change by a substantial amount in response to an
increase in the price of the same, while the demand for luxury goods are reduced substantially
by the same increase in the price levels. Thus, the price elasticity of demand for necessary
goods is lesser than the same for luxury goods. Also, the income elasticity of demand for
normal goods is found to be positive in case of the concerned respondent.

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References
Baker, D. (2016). Getting Prices Right: Debate Over the Consumer Price Index: Debate
Over the Consumer Price Index. Routledge.
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.
Fink, A. (2012). How to conduct surveys: A step-by-step guide: A step-by-step guide. Sage
Publications.
Hall, R. E., & Lieberman, M. (2012). Microeconomics: Principles and applications. Cengage
Learning.
McKinnon, R. I., & Ohno, K. (2016). 7 Purchasing power parity as a monetary. The Future
of the International Monetary System: Change, Coordination of Instability?: Change,
Coordination of Instability?, 42.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application.
Cengage Learning.
Pindyck, R. S., & Rubinfeld, D. L. (2014). Microeconomics.
Rader, T. (2014). Theory of microeconomics. Academic Press.
Wu, Y. (2013). What explains movements in the peso/dollar exchange rate?.