Question

CENGAGE MINDTAP Q Search this course Homework (Ch 05) x • The availability of close substitutes • Whether the good is a necessity or a luxury • How broadly you define the market • The time horizon being considered demand, since consumers can easily choose to purchase one of the close A good with many close substitutes is likely to have relatively 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 most elastic demand? Sports car O A heart valve for heart attack victims 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 Most Elastic In Between Least Elastic Categories Food Vegetables Red bell peppers 0 0 0 0 0 0 0 0 0 The price elasticity of demand is also affected by the given time horizon. Other things being equal, the demand for natural gas will tend to be elastic in the short run than in the long run.

Answer 1

A good with many close substitute is likely to have relatively elastic demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

Note: Goods which have more close substitute --------> Elastic demand

Goods which have no close substitute --------> Inelastic demand

Sports car has the most elastic demand.

Note: Luxury goods have high elasticity of demand.

and ,Essential goods is generally inelastic demand.

Food: (Least Elastic)

Vegetables: (In between)

Red bell peppers: (most elastic)

Other things being equal, the demand for natural gas will tend to be less elastic in the short run than in the long run.