1For each of the following pairs of goods which good is expe

1.For each of the following pairs of goods, which good is expected to have the more price elastic demand? Hints: See pp.91-93 in Chapter 5 of the course text. See also TYU Problems and Applications 1, for example, in the Chapter 5 Student Package. [i] required textbooks or mystery novels i ethoven recordings or all classical music recordings [ii] ectricity for home heating during the next six months or electricity for home heating during the next five years iv] root beer or water

Solution

Ans. Price elasticity of demand- It refers to the degree of responsivess to change in quantity demand due to change in its price. It measures the percentage change in quantity demanded due to percentage change in price.

(1) Required textbook - It has less price elasticity of demand because it is needed for higher studies. In short it is necessary.

While, Mystery novels have more price elasticity of demand because they are luxury good.

Students cannot study without required textbooks but can study without mystery novels.

(2) Beethoven recordings - It will have less price elasticity of demand, because it is very ancient. While all other classical music recordings are ordinary goods which will have high price elasticity of demand.

(3) It depends upon the time period, urgency and expected price level.

Electricity for home heating during the next six months - less elasticity of demand.

Electricity for next five years - more price elasticity of demand as customers can search more about different substitutes.

(4) Root bear - high price elasticity of demand because ordinary good or luxury

Water - less or zero price elasticity of demand because it is the necessacity