A good with many close substitutes is likely to have relatively ___________(elastic, inelastic) demand since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.
A good with many close substitutes is likely to have relatively ___________(elastic, inelastic) demand since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.
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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 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
Ā
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 | Ā | Ā | Ā | Ā |
| Red bell peppers | Ā | Ā | Ā | Ā |
| Vegetables | Ā | Ā | Ā | Ā |
Ā
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
Ā
Ā
