Question

If prices of salt and coffee increase by the same proportion, will their quantity demanded behave in the same manner? Explain by giving reasons.

Answer 1

• Salt:
  1. Nature of the Goods: Salt is a basic necessity in almost every household. It is used in small quantities, with few substitutes in daily cooking. The demand for salt is highly inelastic, meaning that the quantity demanded will not decrease significantly even if the price increases. People need salt for their daily diet, constituting a very small portion of their overall spending.
  2. Proportion of Income Spent: Salt is a relatively inexpensive item that takes up a tiny fraction of most households' budgets. Even if the price rises significantly, it won’t make a noticeable difference in overall expenses, so people will continue to buy roughly the same amount.
  3. Availability of Substitutes: Very few, if any, direct substitutes for salt exist in cooking, making it difficult for consumers to switch to another product when the price rises.
• Coffee: 
  1. Nature of the Goods: Coffee, conversely, is more of a comfort or luxury for many consumers. While some might consider it necessary, it is not as essential as salt. The demand for coffee is more elastic compared to salt. If the price of coffee increases, some consumers might reduce their consumption or switch to other beverages, leading to a larger decrease in the quantity demanded.
  2. Proportion of Income Spent: Coffee can be relatively expensive, especially if one buys premium brands or drinks it regularly. A price increase might prompt consumers to reduce coffee consumption, switch to cheaper brands, or substitute it with other drinks.
  3. Availability of Substitutes: Coffee has many substitutes, such as tea, herbal drinks, or other caffeinated beverages. This makes it easier for consumers to switch to another product if the price of coffee increases, leading to a more elastic demand.