Necessities and luxuries have a big impact on how we buy things when prices change. Let me break it down for you:
Necessities: These are the things we really need to live, like food, water, and basic healthcare. When the prices go up, people still have to buy them. This means the demand stays pretty steady, or inelastic. For example, if the price of bread goes up, people will still buy it because they need to eat. So, the price elasticity of demand (PED) is low, usually less than 1.
Luxuries: These are the fun things we want but don’t need, like fancy clothes or the latest gadgets. When their prices rise, people might decide to buy less or choose cheaper options. This makes the demand for luxuries more elastic. For instance, if a luxury car becomes more expensive, fewer people will buy it. In this case, the PED is greater than 1.
To sum it up, necessities usually have inelastic demand, which means people will keep buying them even when prices go up. On the other hand, luxuries have elastic demand, so people buy less when prices rise. That’s how the market works!
Necessities and luxuries have a big impact on how we buy things when prices change. Let me break it down for you:
Necessities: These are the things we really need to live, like food, water, and basic healthcare. When the prices go up, people still have to buy them. This means the demand stays pretty steady, or inelastic. For example, if the price of bread goes up, people will still buy it because they need to eat. So, the price elasticity of demand (PED) is low, usually less than 1.
Luxuries: These are the fun things we want but don’t need, like fancy clothes or the latest gadgets. When their prices rise, people might decide to buy less or choose cheaper options. This makes the demand for luxuries more elastic. For instance, if a luxury car becomes more expensive, fewer people will buy it. In this case, the PED is greater than 1.
To sum it up, necessities usually have inelastic demand, which means people will keep buying them even when prices go up. On the other hand, luxuries have elastic demand, so people buy less when prices rise. That’s how the market works!