Economics Homework Three Answers - Student Eleven
1. Bratz dolls have a large price elasticity. Each doll is roughly $ 20 and if there is a 20 % discount, people would save $ 4 on the doll. This price reduction appeals to parents who own daughters. The dolls are more affordable; therefore, the demand for the doll increases when the price is reduced.
- The demand for virtually all goods ncreases when the price is reduced. Elasticity is about how much that decrease is. Otherwise good. (Minus 1).
2. Income elasticity is the concept in which sellers use to determine whether or not they have a high or low demand for a good. In times of economic troubles, the income in which people earn in most cases is reduced; therefore, the demand for goods and services decreases as well. When times are prosperous, people tend to buy more goods and purchase more services.
- Right, but notice that income elasticity is good-specific. (Minus 1)
3. A nearly perfectly elastic demand curve is nearly ______ in shape; a nearly perfectly inelastic demand curve is nearly ________ in shape.
A. vertical line B. horizontal line
- The opposite is true. (Minus 1).
4. The price elasticity tells a seller whether they should raise the prices of their good. An inelastic demand is needed whether income is high or low. The price elasticity of a necessity is less than one because no matter how much you raise the price, a person will buy the good because it is needed for them to live and thrive.
A luxury good is something a person could live without. The price of elasticity is higher than one because it is not needed in order for a person to survive. It is a good or service that one will not pay any amount of money to have that good.
- Right idea, but too sweeping in the discussion. Both necessities and luxury goods must obey the Law of Demand in all respects. Also, there was a mistake in the question so please see the model answers.
5. A substitute for French fries would be potato chips. A complement for French fries would be ketchup.
6. An example of a “normal” good would be a laptop. When a income increases, there is more of a demand for newer electronics increases. An example of an “inferior” good would be used cars. An increase in income would allow people to have more money to spend on newer cars. The demand for used cars, which are generally cheaper, would decrease.
7. When the “price ceiling” is set below equilibrium, there will be a shortage. People will demand a greater quantity because the price is lower than the free market price. People will be able to afford the good or service more so because of the lower price.
- Good, but mention how supply is also reduced when there is a price ceiling. (Minus 1).
- 66/70. Good work.--Andy Schlafly 21:37, 27 September 2009 (EDT)