Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers
a. Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic demand.
b. Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the more elastic demand.
c. Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more elastic demand.
d. The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has the more elastic demand.
e. There are more substitutes for IBM personal computers than there are for personal computers. Therefore, IBM personal computers have the more elastic demand.
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