ECON 2001.01 Lecture Notes - Breakfast Cereal, Draught Beer, Decongestant

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ambersardine551

29 Jun 2018

School

Ohio State University

Department

Economics

Course

ECON 2001.01

Professor

All

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Homework 3

1. Consider the following pairs of goods. For which of the two goods would you expect

the demand to be more price elastic? And why?

a. A. water or diamonds

i. Diamonds are luxuries, and water is a necessity. Therefore, diamonds have

the more elastic demand.

b. B. insulin or nasal decongestant spray

i. Insulin has no close substitutes, but decongestant spray does. Therefore,

nasal decongestant spray has the more elastic demand.

c. C. food in general or breakfast cereal

i. Breakfast cereal has more substitutes than does food in general. Therefore,

breakfast cereal has the more elastic demand.

d. D. gasoline over the course of a week or gasoline over the course of a year

i. The longer the time period, the more elastic demand is. Therefore,

gasoline over the course of a year has the more elastic demand.

e. E. personal computers or IBM personal computers

i. There are more substitutes for IBM personal computers than there are for

personal computers. Therefore, IBM personal computers have the more

elastic demand

2. A local drinking establishment recently raised its price of a draft beer from $4 to

$5. As it did, the number of beers it sold decreased from 5,000 to 4,000 per month of

this particular brew.

a. 80%

b. Elastic

c. What would happen to Total Revenue if the bar lowered the price from $4 to

$3 per month and the quantity increased from 5,000 to 6,000? (Increase,

decrease, or stay the same/ and by how much?) Decreased

d. 18,000

e. increase

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ECON 2001.01 Full Course Notes

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Document Summary

Homework 3: consider the following pairs of goods. And why: a. water or diamonds i. Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic demand: b. insulin or nasal decongestant spray i. Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the more elastic demand: c. food in general or breakfast cereal i. Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more elastic demand: d. gasoline over the course of a week or gasoline over the course of a year i. The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has the more elastic demand: e. personal computers or ibm personal computers i. There are more substitutes for ibm personal computers than there are for personal computers. Therefore, ibm personal computers have the more elastic demand.

Related Questions

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

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.

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

bluepanda480

Determinates of Price Elasticity

K-Mart-- Determinants of demand elasticities

1. Generally, the elasticity of demand for a product will be greater when there are:

(a) the larger number of substitutes,
(b) the greater proportion of income an item takes,
(c) the less the item is considered to be a necessity, and
(d) the longer length of time allowed for adjustment to change the price of the good.

2. K-Mart, at its web-site, K-Mart.com posts a weekly sales circular on selected merchandise, organized by department. It must be concluded that the demand for these products are elastic. The decrease in price will increase total revenue. Check out this week's specials and, select ten items.

Answer these questions:
How many specials score 1 point (or 1 yes) for meeting the criterion of each determinant above.
Which specials score 4 points (or 4 yes) for meeting the criterion of each determinant above?
Which specials score 0 (or no yes)?
Why would K-Mart include any item that scored less than a 3 (or less than 3 yes) ?

If the product meets all the determinates of elasticity the more elastic the product. Such as a diamond necklace. So the necklace may go on sale or the store may offer unlimited cleaning of the diamonds or storage to encourage people to buy the necklace.

Whereas a product that meets a few of the determinates of elasticity are considered necessities.

For Example: Do not use any of my products.

Determinates	Dial Body Soap	Tide Laundry Det.	Cigarettes	Generic Heart Medication
Does the product have a large number of substitutes?	Yes/1pt.	Yes/1pt.	0	0
Does the product require a large proportion of your income?	0	0	0	0
Is the product a necessity?	0	0	Yes/1pt.	Yes/1pt.
Do you take a long time to think about buying the product?	0	0	0	0
Total for Each Product	1	1	1	1

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ECON 2001.01 Lecture Notes - Breakfast Cereal, Draught Beer, Decongestant

ECON 2001.01 Full Course Notes

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