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Chapter 6: Problem 3

Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic: a. Milk b. Frozen cheese pizza c. Gasoline d. Prescription medicine

Short Answer

Expert verified
a. Milk - Inelastic, b. Frozen cheese pizza - Elastic, c. Gasoline - Inelastic, d. Prescription medicine - Inelastic

Step by step solution

01

Identify the category of the good - Milk

Milk is considered a necessity product which is consumed on a daily basis and has few substitutes available. Therefore, the demand for milk is predicted to be fairly inelastic since changes in price would likely see only minor changes in the quantity demanded.
02

Identify the category of the good - Frozen cheese pizza

Frozen cheese pizza is not a necessity, there are many substitutes (other types of prepared or fresh foods) and is not something that is typically consumed every day. Therefore, the demand for frozen cheese pizzas is likely to be elastic as changes in price could lead to significant changes in the quantity demanded.
03

Identify the category of the good - Gasoline

Gasoline is a necessity for many people, especially those who need it for transportation to work or other essential activities and there aren't many immediate substitutes available. Therefore, the demand for gasoline is predicted to be relatively inelastic since most motorists will still need to buy gasoline, even when the price rises.
04

Identify the category of the good - Prescription medicine

Prescription medicine is usually a necessity for those who need them, with no close substitutes. Thus, the demand for prescription medicine is likely to be inelastic since a change in price will likely not lead to a significant change in the quantity demanded, as people need their medicines regardless of price.

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Most popular questions from this chapter

Draw a graph of a perfectly inelastic demand curve. Think of a product that would have a perfectly inelastic demand curve. Explain why demand for this product would be perfectly inelastic.

What is the midpoint formula for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of using the midpoint formula?

To legally operate a taxi in New York City, a driver must have a medallion issued by the New York City Taxi and Limousine Commission, an agency of the city's government. In 2017 the number of medallions was 13,587 . In recent years the taxi industry in New York and other large cities has encountered competition from companies such as Uber, an app-based service that offers rides from drivers who own their own cars. Uber varies the prices it charges based on the demand for rides, with rides during busier periods, such as Saturday nights, having higher prices. a. What does the limitation on their number imply about the price elasticity of supply of taxi medallions? b. Is the supply of Uber rides more or less elastic than the supply of taxi rides in New York City? Briefly explain.

In recent years, increases in the number of visitors to national parks such as Yellowstone and Grand Canyon have resulted in over \(\$ 12\) billion in deferred maintenance costs. In response to the overcrowding that has contributed to the cost overruns, the Park Service has considered limiting the number of daily visits to the parks and soliciting corporate sponsorships. Margaret Walls, a research director and senior fellow at Resources for the Future, has offered another suggestion: Increase entrance fees. But she warned: "Figuring out an efficient and fair fee structure will not be easy. It requires detailed data on visitation, for starters, as well as analysis to shed light on price elasticities of demand for different groups of visitors at different locations." Why is it important for the Park Service to have estimates of price elasticities of demand before raising entrance fees to the national parks?

The price of organic apples falls, and apple growers find that their revenue increases. Is the demand for organic apples elastic or inelastic?
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