1."A new high-end smartphone is now more expensive than a laptop computer, but the devices have become nothing short of a necessity."What is the numerical value of the price elasticity of demand for an absolute necessity? Explain.

Refer to article:

"Peloton will struggle to be the Apple of Fitness"

Remember when $500 seemed like a lot for a cellphone?

When Apple released its first iPhone in the summer of 2007, this newspaper questioned whether it was "worth it." Hindsight is 20/20, of course. A new high-end smartphone now is more expensive than a laptop computer, but the devices have become nothing short of a necessity. Over the past 12 years, Apple has created a phone business now generating more than $140 billion in sales annually and its share price has increased more than 12-fold.

Apple's success with the iPhone may never be re-created, but Peloton Interactive is similarly trying to convince users to buy an expensive product they never knew they needed. Central to its pitch to investors is that its exercise bikes, which cost $2,000, and the even pricier treadmills, plus subscription plans, are broadly attractive. Peloton asserts in its initial-public-offering filing that its target market is made up of households earning anywhere over $50,000 a year and predicts that it can tap 45 million U.S. households, or more than one-third of the total. With the iPhone capturing only slightly more than that, in terms of North American market share, Peloton is banking that attaining athletic enlightenment is about as useful as having the world at your fingertips.

The modern-day version of the Nautilus certainly has generated commendable growth. Peloton launched its first bike in 2014, and by May 2017 had surpassed more than 100,000 fitness subscribers. It has the upfront fee of a bike or a treadmill (the latter was added last year and is twice as expensive as the bike) plus a $39 monthly service subscription. Both products are priced well above any comparable piece of exercise gear, but Peloton has still managed to sell about 577,000 products to date.

Where can it go from here, though? Unlike Apple, the network effects of connected stationary bikes and treadmills aren't as strong and the proprietary technology and utility of the product hardly as great. With a more expensive, less scalable and less necessary product, it is hard to see future Peloton shareholders having anywhere near the same results as Apple.

Even if the U.S. population cared as much about exercise as clicking away, Peloton faces stiff competition. Health clubs have expanded more than 27% since 2014, according to Wellness Creative. While the virtual nature of Peloton enables users to roll out of bed onto their bikes, the company faces competitors in streaming, too. Already clubs like Gold's Gym are rolling out personal-training apps. Other virtual companies like Beachbody On Demand have subscription services.

Success isn't just about convincing users of its utility, but the price, too. According to the Bureau of Labor Statistics, the average person spent slightly over $3,000 on entertainment in 2017. People already have enough excuses not to jump on the treadmill for 20 minutes daily, not least the lack of spare money.

The combination of the lack of utility and overall expense may speak to why Peloton's products aren't exactly selling themselves. Sales-and-marketing expenses were 35% of sales in its most recent fiscal year ended June 30, roughly the same as two years prior. In the fiscal year in which it launched the iPhone, Apple's selling, general and administrative expenses were only about 12% of revenue.

Peloton's marketing expense is on top of all the others: paying its fitness instructors, costs for the physical space to sell bikes and royalties they pay to be sure their users are pedaling to the best tunes. The latter is another risk for shareholders: Peloton was sued by music companies over royalty payments earlier this year, forcing it to alter playlists as it contests the case.

Like Apple, Peloton also may find that selling products with a service component can be a mixed blessing. Even Apple's vaunted services businesscomprised of everything from app sales to Apple Pay to service warranty plans has decelerated as the iPhone hardware business has peaked. But Apple can still sell many types of services to a single device. When demand for Peloton's uber-expensive gear hits its own peak, selling more memberships will be nearly impossible.

Betting that either will one day be viewed as a necessity is a road to nowhere.