For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value)
a. Blood pressure medicine for someone who has high blood pressure or the purchase of Clairol hair coloring product.
b. A new Ford Fusion or a tank of gas for your current car.
c. A Seiko watch or watches in general.
What will be an ideal response?
a. The demand for the hair product is more price elastic (its elasticity has a higher absolute value) than the demand for blood pressure medicine. The latter is more necessity than luxury and has virtually no substitutes. There are substitutes for the Clairol hair coloring product and it is not a necessity.
b. The demand for a new car is more price elastic than the demand for a tank of gas for your current car. The Ford Fusion: (a) has many substitutes, including your current car and (b) will consume a relatively large portion of your budget. Gasoline for the car you own is more necessity than luxury.
c. The demand for Seiko watches is more price elastic than demand for watches in general. Narrowly defined markets (such as the Seiko watch market) have many substitutes.
You might also like to view...
Suppose Sam plans to buy only popcorn and soda. He has $40 to spend per week. A change in which of the following variables will change Sam's consumption possibilities? I. price of popcorn II. income III. preferences IV. utility
A) II only B) I and II C) I, II and III D) III and IV
An office supply store sells a ream of printer paper at a fixed price of $4.50. Which of the following is a term used by economists to describe the money received from the sale of an additional ream of paper?
A) pure profit B) gross earnings C) marginal costs D) marginal revenue E) net benefit
According to Keynes,
A. supply creates its own demand. B. the problem during recessions was inadequate aggregate supply. C. investment spending was necessary to get us out of a depression. D. budget deficits were good during recessions.
Presidents _____________ and _____________ will go down in history as the two greatest tax cutters.
What will be an ideal response?