Use an elasticity concept to explain each of the following observations. a. During economic booms, the number of new personal care businesses, such as gyms and tanning salons, is proportionately greater than the number of other new businesses, such as grocery stores. b. Cement is the primary building material in Mexico. After new technology makes cement cheaper to produce, the supply curve for the Mexican cement industry becomes relatively flatter. c. Some goods that were once considered luxuries, like a telephone, are now considered virtual necessities. As a result, the demand curve for telephone services has become steeper over time. d. Consumers in a less developed country like Guatemala spend proportionately more of their income on equipment for producing things at home, like sewing machines, than consumers in a more developed country like Canada.

Step by step solution

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a. Economic booms and types of new businesses

During economic booms, people generally have more disposable income, which leads to a higher demand for goods and services. The elasticity concept can be applied here by examining the price elasticity of demand for different types of goods. Personal care businesses, such as gyms and tanning salons, are considered luxury or nonessential goods. These goods typically have a higher price elasticity of demand compared to essential goods like grocery stores. During economic booms, consumers are more likely to spend on luxury goods, leading to a proportionately greater number of new personal care businesses opening up.

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b. Cement production and supply curve

After the introduction of new technology that makes cement cheaper to produce, the supply curve for the Mexican cement industry becomes relatively flatter. This indicates that the price elasticity of supply has increased. With the new technology, cement producers can respond more to changes in price, supplying a greater quantity of cement at lower prices or decreasing their production when prices fall. A flatter supply curve represents this increased responsiveness to price changes.

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c. Shift in demand curve for telephone services

As goods that were once considered luxuries, like telephones, become virtual necessities over time, the demand curve for these goods becomes steeper. A steeper demand curve indicates a decrease in the price elasticity of demand. When a good becomes essential, consumers are less likely to reduce their consumption when prices increase or to increase their consumption when prices decrease. Consequently, the demand for essential goods like telephone services becomes less responsive to changes in price.

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d. Spending on home production equipment in less developed countries

In less developed countries like Guatemala, consumers typically spend a larger proportion of their income on equipment for producing things at home, like sewing machines, compared to consumers in more developed countries like Canada. This phenomenon can be explained through income elasticity of demand, which measures how responsive the quantity demanded is to changes in income. Home production equipment tends to have a higher income elasticity of demand in less developed countries. As income increases, consumers in these countries are more likely to spend on goods that enable them to produce things at home, improving their self-sufficiency and economic well-being. In more developed countries, higher income levels enable consumers to purchase a wider range of goods and services, reducing their reliance on home production equipment.

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