What are the main determinants of demand elasticity? Explain their importance
First is the nature of the good. Necessities have less-elastic demand than do luxury goods. Second, there's availability of close substitutes. The more substitutes exist and the closer they are to the original good, the more elastic demand will be. Third is the fraction of income absorbed; the smaller the fraction of income spent on an item, the more elastic demand will be. Fourth is the passage of time; the more time that passes after a price change, the greater the demand elasticity.
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Paul Bergen and Virginia Clancy each own a 100-acre soybean farm in Soyburg, Illinois. Together they grow 1/1000th of 1 percent of the nation's soybeans. When they merge, it will:
a. b and e. b. be a horizontal merger. c. reduce competition in the soy market. d. increase the market power of Paul and Virginia. e. probably go unnoticed outside of Soyburg.
In the 1970s, the U.S. experienced stagflation. What is stagflation?
a. Low inflation and low unemployment b. Low inflation and high unemployment c. High inflation and high unemployment d. High inflation and low unemployment
How are government revenues changed by the introduction of tariffs on imported shoes as shown in Exhibit 1?
a. loss of areas c, d, e, and f
b. loss of areas d and e
c. gain of area c
d. gain of area e
When consumers substitute a cheaper good for a more expensive one, the CPI will ________ the change in the cost of living.
A. equal B. precisely measure C. overstate D. understate