For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value)
a. Insulin for a diabetic or aspirin for someone suffering a headache.
b. A new Whirlpool 27 cu.ft. side-by-side refrigerator or electricity to power your all-electric home.
c. A can of Red Bull or soft drinks in general.
What will be an ideal response?
a. The demand for aspirin is more price elastic (its elasticity has a higher absolute value) than the demand for insulin. Insulin is more necessity than luxury and has virtually no substitutes. There are substitutes for aspirin and it is not necessarily a necessity.
b. The demand for a new refrigerator is more price elastic than the demand for electricity to power your home. The Whirlpool refrigerator has many substitutes. Electricity to power your all-electric home is more necessity than luxury, and if your home is powered only by electricity, few, if any, substitutes are available.
c. The demand for Red Bull is more price elastic than demand for soft drinks in general. Narrowly defined markets (such as the Red Bull drink market) have many substitutes.
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Which of the following is NOT associated with a high degree of monopoly power?
A) A relatively inelastic demand curve for the firm B) A small number of firms in the market C) Significant price competition among firms in the market D) Significant barriers to entry
Carla had received very low annual return from her investment portfolio comprising of stocks of five companies for two years. Her decision to continue holding the same portfolio of assets will be an example of:
a. bounded rationality. b. selfishness. c. altruism. d. systematically missed opportunities.