Consider some determinants of the price elasticity of demand: • The availability of close substitutes • Whether the good is a necessity or a luxury • How broadly you define the market • The time horizon being considered A good without any close substitutes is likely to have relatively demand, since consumers cannot easily switch to a substitute good if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? Diamond necklace O Amputation procedures for diabetes sufferers The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Vegetables Food Red bell peppers The price elasticity of demand is also affected by the given time horizon. If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public elastic in the short run than in the long run. transportation. Therefore, the demand for gasoline is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Determinants of the price elasticity of demand

Consider some determinants of the price elasticity of demand:

•	The availability of close substitutes
•	Whether the good is a necessity or a luxury
•	How broadly you define the market
•	The time horizon being considered

A good without any close substitutes is likely to have relatively _____ demand, since consumers cannot easily switch to a substitute good if the price of the good rises.

1. Determinants of the price elasticity of demand
Consider some determinants of the price elasticity of demand:
• The availability of close substitutes
• Whether the good is a necessity or a luxury
• How broadly you define the market
• The time horizon being considered
A good without any close substitutes is likely to have relatively
demand, since consumers cannot easily switch to a substitute good if
the price of the good rises.
A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the
same, which one has the most elastic demand?
Diamond necklace
Amputation procedures for diabetes sufferers
The price elasticity of demand for a good also depends on how you define the good.
Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic
demand, and which will have demand that falls in between.
Categories
Most Elastic
In Between
Least Elastic
Vegetables
Food
Red bell peppers
The price elasticity of demand is also affected by the given time horizon.
If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public
transportation. Therefore, the demand for gasoline is
elastic in the short run than in the long run.

Expert Solution

Step 1

1) Price elasticity of demand is inelastic or less than 1 if the changes in quantity demanded are less than the changes in price.

It is elastic if the changes in quantity demand are more than changes in price.

A good without any close substitutes is likely to have relatively inelastic demand since consumers cannot easily switch to a substitute good if the price of the good rises. So the change in quantity demanded would be less when the price increases with a higher proportion.

Given the two goods, a diamond necklace would have a more elastic demand. This is because it is a luxury good as compared to amputation procedure which is a necessity and not a luxury good.

So diamond necklace has the most elastic demand.

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