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| | == Review: Price Elasticity of Demand == | | == Review: Price Elasticity of Demand == |
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| − | Last class one student asked this question: what are some example price elasticities of demand? Recall the cutoff of 1: price elasticity less than 1 is inelastic, and more than 1 is elastic. Here are specific examples: | + | Last class one student asked this question: what are some example price elasticities of demand? Recall the cutoff of 1: price elasticity less than 1 is inelastic, and more than 1 is elastic. Here are specific examples (price elasticity is always negative due to the Law of Demand, but its absolute (positive) value is used for convenience): |
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| | *rice in Japan: 0.2 (inelastic because it is a basic food there) | | *rice in Japan: 0.2 (inelastic because it is a basic food there) |
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| | *the percentage of one's income allocated to the good: if it is a large percentage, then it will have higher price elasticity | | *the percentage of one's income allocated to the good: if it is a large percentage, then it will have higher price elasticity |
| | *the longer the time period, the more price elastic it will be, because in the long run demand can more fully respond to a price change | | *the longer the time period, the more price elastic it will be, because in the long run demand can more fully respond to a price change |
| − | *whether the good is addictive, because addictive goods are inelastic due to how the buyers are hooked on them no matter what the price is | + | *whether the good is addictive, because an addictive good is inelastic due to how the buyers are hooked on it even when its price increases |
| | *whether the market is at "peak" or "off-peak" demand; people want airline tickets the day before Thanksgiving, when many people traveling, even if the price increases | | *whether the market is at "peak" or "off-peak" demand; people want airline tickets the day before Thanksgiving, when many people traveling, even if the price increases |
| | *the more narrowly defined a good is (e.g., a specific brand of hamburger rather than all hamburgers), the more price elastic it will be due to the availability of substitutes | | *the more narrowly defined a good is (e.g., a specific brand of hamburger rather than all hamburgers), the more price elastic it will be due to the availability of substitutes |