Consider some determinants of the price elasticity of demand

Consider some determinants of the price elasticity of demand:

A good with many close substitutes is likely to have relatively----------------   demand, since 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 most elastic demand?

1. Sports car

2. Chemotherapy for cancer patients

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

The price elasticity of demand is also affected by the given time horizon.

If the price of gasoline is relatively high for a long time, consumers are more likely to buy more fuel-efficient cars or switch to alternatives like public transportation. Therefore, the demand for gasoline is ----------------- elastic in the short run than in the long run.

Solution

(1) A good with many close substitutes is likely to have relatively Elastic demand.

(The more the number of substitutes, the higher the price-sensitivity of consumers and the more elastic the demand)

(2) Sports Car has most elastic demand

(A sports car is a luxury good, so buyers are highly price-sensitive and demand is elastic)

(3) The broader (narrower) a product\'s scope is defined, the less (more) elastic its demand.

Most elastic

In-between

Least elastic

Boot-cut Jeans

Pants

Pants

Clothing

(4) The demand for gasoline is less elastic in short run.