Answer to Question #166654 in Microeconomics for prosper

Question

For each of the following pair of goods, which good would you expect to have more

price elastic demand and why?

2

a. Textbooks recommended by lecturers or mystery novels.

b. Downloads of tracks by Jay-Z or downloads of hip-hop music in general.

c. Heating oil during the next six months or heating oil during the next five

years.

d. Lemonade and water.

Answer 1

a) Required textbooks are necessary and have no close substitutes. Thus, the demand for textbooks is inelastic. Mystery novels have close substitutes, thus their demand is elastic. Therefore, mystery novels have more elastic demand.

b) Downloads of tracks by Jay-Z have more elastic demand than downloads of hip-hop music in general so it is easy to find close substitutes for them.

c) Heating oil during the next five years have more price elasticity since goods have more elastic demand over longer time horizons and inelastic demand over shorter time horizons.

d) Lemonade have more elastic demand than water because it has close substitutes, while water is a necessity with no close substitutes.