Buyers can easily compare prices, and buyers experience the services provided by competitors as being very similar. Buyers can often choose not to travel if the cost is too high or substitute travel by car or train. Medical Procedures. Essential medical procedures have inelastic demand. The patient will pay what she can or what she must. In general, products that significantly affect health and well-being have inelastic demand. Soft Drinks. Soft drinks and many other nonessential items have highly elastic demand.
There is competition among every brand and type of soda, and there are many substitutes for the entire category of soft drinks. Self Check: Explaining Elasticity Answer the question s below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to 1 study the previous section further or 2 move on to the next section. Skip to main content. Module: Elasticity. This is because people will prefer to lower-cost substitute to the higher cost one. If, for example, the price of coffee increases, the demand for tea may also increase as consumers switch from coffee to tea to maintain their budgets.
Conversely, when a good's price decreases, the demand for its substitute may also decrease. In formal economic language, X and Y are substitutes if demand for X increases when the price of Y increases, or if there is positive cross elasticity of demand.
The availability of substitutes are one of Porter's 5 Forces , the others being competition, new entrants into the industry, the power of suppliers, and the power of customers. Substitute goods are all around us. As mentioned above, they are generally used for the same purpose or are able to satisfy similar needs for consumers.
Here are just a few examples of substitute goods:. There is one thing to keep in mind when it comes to substitutes: the degree to which a good is a substitute for another can, and often will, differ. Classifying a product or service as a substitute is not always straightforward. There are different degrees to which products or services can be defined as substitutes. A substitute can be perfect or imperfect depending on whether the substitute completely or partially satisfies the consumer.
A perfect substitute can be used in exactly the same way as the good or service it replaces. This is where the utility of the product or service is pretty much identical. For example, a one-dollar bill is a perfect substitute for another dollar bill. And butter from two different producers are also considered perfect substitutes; the producer may be different, but their purpose and usage are the same.
A bike and a car are far from perfect substitutes, but they are similar enough for people to use them to get from point A to point B. There is also some measurable relationship in the demand schedule. Although an imperfect substitute may be replaceable, it may have a degree of difference that can be easily perceived by consumers. So some consumers may choose to stick with one product over the other. Consider Coke versus Pepsi. A consumer may choose Coke over Pepsi—perhaps because of taste—even if the price of Coke goes up.
If the price of butter rises, the demand for it may decrease while the demand for margarine may increase. For example, if a customer is planning to bake a batch of cookies and needs a few sticks of butter, they may purchase margarine if the price of butter is higher than expected. Many publishers release books in hardcover, paperback and e-book format. Since physical books and e-books typically contain the same information, customers may substitute one for the other.
Sandals and flip-flops are two types of light footwear that many people wear. While these types of shoes have different structural designs, they both help people stay cool during warm weather so customers often substitute them for each other. If the price of sandals increases, it may reduce customer demand. As a result, the demand for flip-flops may increase. Tuna and salmon are popular types of fish that customers may purchase fresh or canned. While the two kinds of fish have different flavors, customers may substitute one for the other in various recipes.
If the price of salmon goes up, the demand for tuna might rise as customers begin substituting. Steel-toe boots and composite-toe boots are durable shoes that include protective reinforcement in the toe area. Since these boots are close substitutes, a higher price for steel-toe boots could create an increase in demand for composite-toe boots.
A price reduction in one boot style could also decrease consumer demand for the alternative product. Minivans and SUVs are automobiles that customers often substitute for one another.
They're structurally similar and serve the same purpose of transporting people and cargo. Price is often an important factor that customers consider when deciding which type of vehicle to purchase. Earrings and necklaces are common types of jewelry that often have stark differences in design and use.
This weak connection means earrings and necklaces are imperfect substitutes for each other. Customer demand for earrings may decrease if their price increases, but this price change might not affect the demand for necklaces. Eyeglasses and contact lenses are devices people use to improve their eyesight or help them see in specific conditions, such as at night. Since they serve the same purpose, eyeglasses and contact lenses are close substitutes.
Consumer demand for contact lenses may increase if the price of eyeglasses goes up and consumer demand for contact lenses may decrease if the price of eyeglasses goes down. Red Delicious and Gala apples are two types of the same sweet fruit. While they have slightly different flavors, they serve the same purpose as a consumer good, so they're close substitutes. If the price of Red Delicious apples rises, consumer demand for them may decrease and the demand for Gala apples may rise.
Cappuccinos and lattes are two types of coffee drinks that include espresso and steamed milk. Since they're composed of similar ingredients, they're close substitutes.
Ask Question. Asked 5 years, 8 months ago. Active 5 years, 6 months ago. Viewed 1k times. Improve this question. Add a comment. Active Oldest Votes. Improve this answer. Sony has a distribution network in many countries and makes almost no marketing for the E-ink reader in the United States.
At least one of their US distributors sells other products worldwide, but is apparently forced to sell the reader only in the U.
The fixed costs of development of an electronic device seem very large compared to registering the device with a regulator. While your answer may apply to some products, in the given example I am still puzzled Somethign that is harder to develop in the case of E-readers is the e-book infrastructure of editorial distribution rights, copyrights, etc. Some countries do not have a legal framework updated for this kind of thing.
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