MACROECONOMICS
MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
Question
Book Icon
Chapter 4, Problem 1TY
To determine

(a)

To analyze the demand curve of medicine that means life or death for a patient.

Expert Solution
Check Mark

Answer to Problem 1TY

The demand curve will be a vertical straight line.

Explanation of Solution

Elasticity of demand refers to the degree of responsiveness of a change in the quantity demanded for a given change in the price level of a good.

When the percentage change in quantity demanded exceeds the percentage change in price, the demand is said to be elastic.

When it is less than the percentage change in price, then the demand is said to be inelastic. When the percentage change is equal, then the demand is unitary elastic.

The shape of a demand curve depends on the elasticity of demand for a good. A medicine that means life or death for a patient is a necessary good for the patient. Hence, its demand is perfectly inelastic.

The curve of perfectly inelastic demand is shown below:

MACROECONOMICS, Chapter 4, Problem 1TY , additional homework tip  1

The graph shows that whatever be the price charged for the medicine, the patient will purchase it because it means life or death for him. Hence, this kind of demand curve is a vertical straight line with elasticity 0.

To determine

(b)

To analyze: the demand curve of French fries in a food court with kiosks offering many types of food.

Expert Solution
Check Mark

Answer to Problem 1TY

The demand curve will be flat in shape.

Explanation of Solution

Elasticity of demand refers to the degree of responsiveness of a change in the quantity demanded for a given change in the price level of a good.

When the percentage change in quantity demanded exceeds the percentage change in price, the demand is said to be elastic.

When it is less than the percentage change in price, then the demand is said to be inelastic. When the percentage changes are equal, then the demand is unitary elastic.

The shape of a demand curve depends on the elasticity of demand for a good. French fries are good with many other substitutes. K are offering a variety of other goods which makes demand curve of French fries more elastic.

The curve of this demand is shown below:

MACROECONOMICS, Chapter 4, Problem 1TY , additional homework tip  2

The graph shows that a slight increase in the price of French fries will make consumers shift their preferences to other goods. Hence, the quantity demanded will decrease largely. This type of demand curve is flat with an elasticity greater than 1.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Describe the various measures used to assess poverty and economic inequality. Analyze the causes and consequences of poverty and inequality, and discuss potential policies and programs aimed at reducing them, assess the adequacy of current environmental regulations in addressing negative externalities. analyze the role of labor unions in labor markets. What is one benefit, and one challenge associated with labor unions.
Evaluate the effectiveness of supply and demand models in predicting labor market outcomes. Justify your assessment with specific examples from real-world labor markets.
Explain the difference between Microeconomics and Macroeconomics?  2.) Explain what fiscal policy is and then explain what Monetary Policy is? 3.) Why is opportunity cost and give one example from your own of opportunity cost. 4.) What are models and what model did we already discuss in class? 5.) What is meant by scarcity of resources?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Text book image
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co
Text book image
Macroeconomics
Economics
ISBN:9781337617390
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning