How to Determine the Elasticity of Demand for Hair Dryers?
What is the likely elasticity of demand for hair dryers based on the given information?
a. Hair dryers are an inferior good.
b. The demand for hair dryers is perfectly elastic.
c. The demand for hair dryers is inelastic.
d. The demand for hair dryers is elastic.
Answer:
Based on the information provided, the likely elasticity of demand for hair dryers is:
d. The demand for hair dryers is elastic.
Based on the increase in the price of hair dryers leading to an increase in total expenditures on the hair dryers, we can infer that the demand for hair dryers is likely to be elastic. Elastic demand means that a small change in price leads to a proportionately larger change in quantity demanded.
When the price of hair dryers increases and total expenditures on hair dryers also increase, it indicates that consumers are still willing to spend more money on hair dryers despite the higher prices. This responsiveness to price changes signifies elastic demand.
This elasticity could be attributed to various factors such as the availability of substitutes, consumer preferences, and the perceived necessity of hair dryers. In this case, consumers are willing to pay more for hair dryers even as the price rises.