4. In each case, state whether you believe the demand for the product is relativ

Question

4. In each case, state whether you believe the demand for the product is relatively elastic or relatively inelastic? Then, provide reasons for your conclusion. a. A company buying advertising during the Super Bowl b. Wheat used to make bread and flour c. Services of a dentist to bleach teeth to make them very white d. A new automobile when the interest rate to borrow money to buy the automobile goes to zero e. Use of cigarettes when the state of California raised the cigarette tax by $1.10 f. Buying gasoline when the price rose from $2.00 to $3.00 per gallon g. Electricity when the prices tripled in just a few months

Explanation / Answer

a. A company buying advertising during the Super Bowl. The company is shelling huge amount on advertising. the company's decision to do so must be based on the cost and the benefit of advertising with super bowl. the cost is in trems of payment for advertisement and resultant increase in the price of their product that will cause contaction in demand. the benefit is increase in demand of that product which would cause shift in demand curve outwards. thus the demand should be relatively less elastic, because increased demand due to advertising would tend to overcome the contraction in demand sue to increase in price.

b. Wheat used to make bread and flour: the demand is relatively elastic because whet breat has the close substitutes.

c. Services of a dentist to bleach teeth to make them very white: the demand is relatively elastic because of many dentist available in the market. the dentist market is competitive market.

d. A new automobile when the interest rate to borrow money to buy the automobile goes to zero: with zero interest rate, people will demand more automobiles. the demand for new automobile would be relatively less elastic.

e. Use of cigarettes when the state of California raised the cigarette tax by $1.10: the demand is relatively less elastic. With increase in price due to tax would reduce the demand but it would be less.

f. Buying gasoline when the price rose from $2.00 to $3.00 per gallon: the demand will not fall much. the demand is relatively less elastic becaus eof less substitutes available in the market and gasoline beimg an important input.

g. Electricity when the prices tripled in just a few months: the demand would not fall as much beccause electricity is a basic input. the elasticity is relatively low because there is no substitute for electricity untill the more hybrid options are available.

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