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24 . Determinants of the price elasticity of demand

25 . Choosing demand elasticity on a graph Consider the demand for a narrowly defined good such as a salmon filet. You can plot three different straight lines through the three points X, Y, and Z on this graph. Place the blue line (circle symbol) so that it goes through two of the points and shows the most likely demand curve for this type of good. Hint: Consider the relative elasticities of the different possible demand curves. O Demand Curve PRICE (Dollars per salmon fillet) 2 6 8 10 12 14 18 SALMON FILETS (Millions of kilograms per week)24 . Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: . Availability of close substitutes . Whether the good is a necessity or = luxury . Whether the good is broadly defined The proportion of a consumer's budget spent on the good . Time people have to adapt to new price changes elastic A good with many close substitutes is likely to have relatively. "inelastic demand, because consumers can easily choose to purchase one of the close substitutes 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 least elastic demand? O Yacht O A heart valve for heart attack victims Price elasticity for a good depends on the share of a consumer's budget spent on a good. Other things being equal, which of the following goods has the most elastic demand? O Monthly cell phone bill O Fish food O Thumbtacks 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 O O O Wine O O O Beverages O O O The price elasticity of demand is also affected by the given time horizon. more Compared to the short-run demand for oil, the demand for oil in the long run will tend to bless 7 elastic. no more nor less