ECON111 Lecture 4: Econ111 Lecture 4 notes

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greyraccoon632

14 Sep 2018

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Price elasticity of demand how sensitive/ responsive is demand or supply is to a change in price. To determine the price elasticity of demand, we compare the percentage change in the quantity demanded with the percentage change in price. Proportion of the item in your budget- as proportion increases, elasticity tends to increase as well. Three main factors influence the ability to find a substitute for a good: A necessity has poor substitutes, so the demand for a necessity is inelastic. A luxury has many substitutes, so the demand for a luxury is elastic. The demand for a narrowly defined good is elastic. The demand for a broadly defined good is inelastic. Narrowness of definition increases therefore the substitutes increase and elasticity increases. The longer the time elapsed since the price change, the more elastic is the demand for the good. As times elapse goes up, sensitivity foes up.

Related Questions

FILL IN THE BLANKS

Demand for this good is (enter inelastic, elastic or unitary elastic) with respect to price.

This is a (enter normal or inferior) good as income elasticity is (enter less than, greater than or equal) zero, and it is a (enter necessity or luxury) good as income elasticity is (enter less than, greater than or equal) one.

Widgets and gadgets are (enter complements or substitutes), because cross-price elasticity is (enter positive or negative). Widgets and gadgets (enter are or are not) good substitutes because cross-price elasticity is (enter less than, greater than or equal) (enter the numerical value).

blackwalrus507

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.

browngoat320

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.

lemonbutterfly300

ECON111 Lecture 4: Econ111 Lecture 4 notes

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