Analysis of Price Elasticity of Demand: Household Examples

This assignment explores the concept of price elasticity of demand, differentiating between elastic and inelastic goods. It utilizes real-world examples from a household perspective to illustrate how price changes affect the quantity demanded of various goods and services. The author provides examples such as electricity, foodstuffs, and luxury goods like designer clothes to demonstrate the varying responses to price fluctuations. The analysis incorporates the impact of electricity tariff revisions and the implications for consumer behavior. The assignment references sources such as the Federal Reserve Bank and an Al Arabiya article to support the analysis. The assignment is based on the principles of economics and provides a practical application of the theory.

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Students Name
Institution

Price elasticity of Demand 1
Basically, price elasticity implies a situation whereby there is a price change
affecting the quantity of a particular good ( Federal reserve bank of St. Louis 2019).Majorly,
there are two types of price elasticity of demand. Namely elastic and inelastic .From my personal
experience, primary goods such as water and electricity are inelastic. This is because despite the
price changes am still able to buy almost the same quantity. Usually, my household spent 3000
riyal monthly on electricity bills prior to the ECRA tariff regulation in 2017.Currently my family
spends 3500 riyals following the tariff revision.
In my household, water, foodstuffs and electricity are inelastic. This is because despite the
price increase, the quantity purchased is less than the price increase percentage. For my
household, the foodstuff and electricity are a basic necessity hence a priority in my household.
However, the purchase of designer clothes such as Versace and Chanel handbags are elastic in
my household. These Versace and Chanel products are a luxury which my household doesn’t
consider a priority. They can be substituted with relatively cheaper second hand products hence
the price elasticity of demand.
For other household products such as salt, an increase in price would not affect the
quantity consumed hence it is perfectly inelastic .In my household, goods with substitutes such
are bread are perfectly elastic.

Price elasticity of Demand 2
References
Federal Reserve of St. Louis. (2019). Elasticity of Demand - The Economic Lowdown Podcast
Series, Episode 16. St.Louis.Org. Retrieved from
https://www.stlouisfed.org/education/economic-lowdown-podcast-series/
episode-16-elasticity-of-demand
Staff writer. (2017). Saudi Arabia announces new electricity tariffs. Al arabiya.Net. Retrieved
from http://english.alarabiya.net/en/business/economy/2017/12/12/Saudi-Arabia-
announces-new-electricity-tariffs.html