Consider some determinants of the price elasticity of demand: • The availability of close substitutes • Whether the good is a necessity or a luxury • How broadly you define the market • The time horizon being considered A good with many close substitutes is likely to have relativelyelastic demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises. A good’s price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand? Sports car Chemotherapy for cancer patients The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Clothing Pants Boot-cut jeans The price elasticity of demand is also affected by the given time horizon. Other things being equal, the demand for natural gas will tend to be elastic in the short run than in the long run.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.12P

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Consider some determinants of the price elasticity of demand:

•	The availability of close substitutes
•	Whether the good is a necessity or a luxury
•	How broadly you define the market
•	The time horizon being considered

A good with many close substitutes is likely to have relativelyelastic demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good rises.

A good’s price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the most elastic demand?

Sports car

Chemotherapy for cancer patients

The price elasticity of demand for a good also depends on how you define the good.

Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between.

Categories	Most Elastic	In Between	Least Elastic
Clothing
Pants
Boot-cut jeans

The price elasticity of demand is also affected by the given time horizon.

Other things being equal, the demand for natural gas will tend to be elastic in the short run than in the long run.

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