1. Determinants of the price elasticity of demand Consider some determinants of
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1. Determinants of the price elasticity of demand
Consider some determinants of the price elasticity of demand:
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 the price of the good rises. ? demand, since consumers cannot easily switch to a substitute good if elastic A good's price elasticity of demand depends in part on how nec inelastic relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? O Sports car O Amputation procedures for diabetes sufferers The price elasticity of demand for a 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.Explanation / Answer
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 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 most elastic demand?
Sports car – It has most elastic demand as a sports car is a luxury.
Amputation procedures for diabetes sufferers – It has least elastic demand because it a necessary.
The price elasticity of demand for a 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
Merlot
Most elastic
Beverages
Least elastic
Wine
In between
The price elasticity of demand is also affected by the given time horizon.
Compared to the short-run demand for oil, the demand for oil in the long run will tend to be MORE elastic.
Categories
Most Elastic
In Between
Least Elastic
Merlot
Most elastic
Beverages
Least elastic
Wine
In between
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