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ECON 304 Lecture Notes - Lecture 11: Ceteris Paribus, Inferior Good, Demand Curve

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beigewhale811
2 Oct 2020
School
American River College
Department
Economics
Course
ECON 304
Professor
Rosario

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Document Summary

Substitution possibilities: price elasticity of demand will tend to be higher for products for which close substitutes are readily available e. g. tea and coffee: salt has no close substitutes highly inelastic. Budget share: larger the share of your budget an item accounts for, the greater your incentive to look for substitutes when price of item rises higher price elasticities of demand e. g. flights. Time: price elasticity of demand for any good or service will be higher the longer the period of time over which we measure buyers" response (more time people have to respond, more likely they will switch to substitutes) If two demand curves have a point in common, the steeper curve must be the less elastic of the two with respect to price at that point. Elasticity of demand declines steadily as we move downwards along a straight-line demand curve.

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Related Questions

Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand:
• Number of substitutes
• Whether the good is a necessity or a luxury
• Percentage of one's budget spent on the good
• Time horizon being considered
 
A. A good with many close substitutes is likely to have relatively ___________ demand since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.
 
B. 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 least elastic demand?
1. Chemotherapy for cancer patients
2. Yacht
 
The price elasticity of demand for good also depends on how you define the good.
 
C. 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.
1. Beverages
2. Merlot
3. Wine
 
D. The price elasticity of demand is also affected by the given time horizon. Other things being 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 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 inelastic or elastic demand since consumers cannot easily switch to a substitute good if the price of the good rises?


2. 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 least elastic demand?

a. Diamond necklace

b. Amputation procedures for diabetes sufferers

 

3. The price elasticity of demand for 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
Food        
Red bell peppers        
Vegetables        

 

4. 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 gasoline demand is _______ elastic in the short run than in the long run.

a. less

b. more

c. no more, no less

 

 

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 ___________(inelastic/elastic) 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 least elastic demand?

A. Diamond necklace

B. A heart value for heart attack victims

The price elasticity of demand for 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
Food      
Red Bell Peppers      
Vegetables      
 

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__________ (less, more, no more, nor less) elastic in the short run than in the long run.