Answer to Question #270242 in Microeconomics for Zee

Question

3.1 Use a graph to explain the effect of an imposition by the government of a maximum price in the face mask market. (7)

3.2 Briefly describe any four (4) factors that could result in a product having an inelastic demand.

Answer 1

3.1

The market is distorted by a maximum price, which leads to disequilibrium. Because demand exceeds supply, many consumers will be unable to obtain the goods at all.

3.2

The availability of substitutes, whether the commodity is a luxury or a necessity, the proportion of income spent on the good, and the amount of time since the price changed are the four elements that influence price elasticity of demand.