1. Determinants of the price elasticity of demand Consider the following list containing several price elasticity of demand determinants: • The availability of close substitutes • Whether a good is a luxury or necessity • How broadly the market is defined • The time horizon under consideration A good with no close substitutes is predicted to have relatively price of the good were to increase. The price elasticity of demand of a good depends in part on its relative necessity in comparison to other goods. Assume the following goods all have approximately the same price. Which of the goods has the most elastic demand? O A liver for people on the transplant waiting list O Self-driving cars The price elasticity of demand for a good also depends on how the good is defined. Food Using the following table, organize the goods by indicating which you predict to have the most elastic demand, the least elastic demand, and the elasticity of demand that falls somewhere in between. Categories Most Elastic In Between Least Elastic O O O Produce Strawberries demand, since consumers cannot easily switch to a substitute good if the O O O O The price elasticity of demand of a good is also impacted by the defined time horizon. All else equal, the demand for natural gas will tend to be elastic in the short run than in the long run.
1. Determinants of the price elasticity of demand Consider the following list containing several price elasticity of demand determinants: • The availability of close substitutes • Whether a good is a luxury or necessity • How broadly the market is defined • The time horizon under consideration A good with no close substitutes is predicted to have relatively price of the good were to increase. The price elasticity of demand of a good depends in part on its relative necessity in comparison to other goods. Assume the following goods all have approximately the same price. Which of the goods has the most elastic demand? O A liver for people on the transplant waiting list O Self-driving cars The price elasticity of demand for a good also depends on how the good is defined. Food Using the following table, organize the goods by indicating which you predict to have the most elastic demand, the least elastic demand, and the elasticity of demand that falls somewhere in between. Categories Most Elastic In Between Least Elastic O O O Produce Strawberries demand, since consumers cannot easily switch to a substitute good if the O O O O The price elasticity of demand of a good is also impacted by the defined time horizon. All else equal, the demand for natural gas will tend to be elastic in the short run than in the long run.
Chapter1: Making Economics Decisions
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Transcribed Image Text:1. Determinants of the price elasticity of demand
Consider the following list containing several price elasticity of demand determinants:
• The availability of close substitutes
• Whether a good is a luxury or necessity
• How broadly the market is defined
• The time horizon under consideration
A good with no close substitutes is predicted to have relatively
price of the good were to increase.
The price elasticity of demand of a good depends in part on its relative necessity in comparison to other goods. Assume the following goods all have
approximately the same price. Which of the goods has the most elastic demand?
A liver for people on the transplant waiting list
O Self-driving cars
The price elasticity of demand for a good also depends on how the good is defined.
Using the following table, organize the goods by indicating which you predict to have the most elastic demand, the least elastic demand, and the
elasticity of demand that falls somewhere in between.
Categories Most Elastic In Between
O
O
O
Food
Produce
Strawberries
▼ demand, since consumers cannot easily switch to a substitute good if the
Least Elastic
O
O
O
The price elasticity of demand of a good is also impacted by the defined time horizon.
All else equal, the demand for natural gas will tend to be
elastic in the short run than in the long run.
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