Homework (Ch 05) - 1. Determinants of the price elasticity of demand

Consider the following list containing several price elasticity of demand determinants: . The availability of close substitutes . Whether a good is a luxury or necessity . How broadly the market is defined The time horizon under consideration A good in the presence of many close substitutes is predicted to have relatively demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good were to increase. The price elasticity of demand of a good depends in part on its relative necessity in comparison to other goods. Assume the following goods all have approximately the same price. Which of the goods has the most elastic demand? O Insulin for people with diabetes O Gold jewelry The price elasticity of demand for a good also depends on how the good is defined. Using the following table, organize the goods by indicating which you predict to have the most elastic demand, the least elastic demand, and the elasticity of demand that falls somewhere in between. Categories Most Elastic In Between Least Elastic Alcohol O O O Raspberry white claw O O O Hard seltzer O O O The price elasticity of demand of a good is also impacted by the defined time horizon. Compared to the short-run demand for oil, the demand for oil in the long run will tend to be elastic