Economics Homework Three Answers - Student Ten
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. Gold. When the market price goes down people buy more because it is a good investment and they know the price will eventually go back up.
2. Explain the concept of income elasticity.
When people's income goes up, they tend to buy more goods and services.
3. A nearly perfectly elastic demand curve is nearly vertical in shape; a nearly perfectly inelastic demand curve is nearly horizontal 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?
When the price elasticity is low, generally it is a good that people need
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.