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.
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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Based on the figure above, which of the following factors could lead the demand curve to shift leftward from D0 to D2?
A) a rise in expected future U.S. exchange rate B) a fall in the U.S. exchange rate C) a rise in the U.S. interest rate D) a rise in the U.S. exchange rate E) a fall in foreign interest rates
The deadweight loss represent the sum of added consumer and producer surplus if the firm would produce the quantity where P = MC
Indicate whether the statement is true or false