Economics Homework Three Answers - Student Four

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Anna M


1. Give an example of a good that has a large price elasticity, meaning that a small decrease in price causes a big increase in demand.



2. Explain the concept of income elasticity.



3. A nearly perfectly elastic demand curve is nearly ________ in shape; a nearly perfectly inelastic demand curve is nearly __________ in shape.



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?



5. What is a substitute for french fries, and what is a complement for them?



6. Give an example of a "normal" good, and an example of an "inferior" good.



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.

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