1. Determinants of the price elasticity of demand Consider some determinants of

Question

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 demand, since consumers can easily choose to purchase one of the close A good with many close substitutes is likely to have relatively substitutes 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 most elastic demand? Chemotherapy for cancer patients Yacht

Explanation / Answer

Answer

A good with many close substitutes is likely to have relatively elastic demand because if price of a good rises then consumer can easily shift to there close substitutes.

Chemotherepy for cancer patients has very less or no substitutes hence It is lass elastic whereas Yacht is elastic. Hence Yacht is more elastic than Chemotherepy for cancer patients.

Luxury goods have more elastic demand than necessity.

Hence,

Beverages is Least Elastic

Wine is In Between

Merlot Wine (Most luxury among them) is Most Elastic.

Demand in Long Run is more elastic than demand in Short Run because of many reasons like Consumers preferences can change in the long run but cannot change in the short Run, etc.

Hence Compared to Short Run Demand for oil, the demand for oil in the long run will tend to be more elastic. ( Because there is a chances of having substitues of oil in the long Run)

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