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Economics Homework Three - Model (view source)
Revision as of 12:19, September 28, 2009
, 12:19, September 28, 2009added some
:A nearly perfectly elastic demand curve is nearly flat. A nearly perfectly inelastic demand curve is nearly vertical. (Mark)
:A nearly perfectly elastic demand curve is nearly flat. A nearly perfectly inelastic demand curve is nearly vertical. (Mark)
:a. horizontal b. vertical (Isaac)
4. '''''Why''''' is the name "necessity" given to a good that has a price elasticity of less than one, and the name "luxury" given to a good that has a price elasticity of more than one?
4. '''''Why''''' is the name "necessity" given to a good that has a price elasticity of less than one, and the name "luxury" given to a good that has a price elasticity of more than one?
:When the price elasticity is low, generally it is a good that people ''need'', such as food, fuel, or shelter, and will pay more for. In the equation, the change in Q is a smaller number than the change in P, so it is a proper fraction (<1). A luxury is something that people ''want'', not really need, so they can do without it if the price goes up. The change in Q is larger than the change in P, so it will be an improper fraction (>1). (Aran)
Editor's Note: this question has a mistake. It should have said "'''income''' elasticity" rather than "price elasticity."
:Necessities are the goods we need. They are income inelastic. They are needed and purchased regardless of our income level. Examples would be basic food and clothing to get by. A luxury is a good we want. It income elastic don't generally purchase luxuries in hard economic times. (Shanna)
5. What is a substitute for french fries, and what is a complement for them?
5. What is a substitute for french fries, and what is a complement for them?
:
:A substitute for french fries could be onion rings. A complement could be many things, hamburger, ketchup, hotdog, chicken tenders and much more. (Amanda)
:A substitute for french fries would be actually believe it or not be steamed broccoli! I just recently went out to eat with my family, and my brother-in-law ordered chicken tenders, but instead of ordering french fries with them he ordered steamed broccoli for a more nutritional choice. For as long as I can remember going that particular restaurant, broccoli has always been the substitute for french fries, and I find it very interesting that obviously since they have kept it on their menu for long they are making money off of it! A complement for french fries would be ketchup, or soda, or a hamburger. (Deborah)
6. Give an example of a "normal" good, and an example of an "inferior" good.
6. Give an example of a "normal" good, and an example of an "inferior" good.
:
:Just suppose you do not own a cow, but happen to be lucky enough to live near someone who does and who sells the milk produced by it. If your income is high, you will probably be able to buy some of the expensive, but deliciously creamy, "real milk". However, if your income is low and you simply can't use any of your money on this milk, you will probably be forced to resort back to the infinitely inferior milk sold in stores. The milk from the cow is a "normal good" and the milk sold in stores is an "inferior" good. (Trisha)
7. A "price ceiling" is a type of price control that sets the maximum price allowed by law for something (like a real ceiling). A "price floor" is a type of price control that sets a minimum price allowed by law for something (like a real floor). Does a price ceiling that is set below the equilibrium (free market) price cause a surplus or a shortage? Using the graph in this lecture, explain why a surplus or a shortage is created by a price ceiling.
7. A "price ceiling" is a type of price control that sets the maximum price allowed by law for something (like a real ceiling). A "price floor" is a type of price control that sets a minimum price allowed by law for something (like a real floor). Does a price ceiling that is set below the equilibrium (free market) price cause a surplus or a shortage? Using the graph in this lecture, explain why a surplus or a shortage is created by a price ceiling.