For each of the following pairs of products, discuss which of the two would be expected to be more price elastic and explain why.
i. water vs. diamonds
ii. insulin vs. cough syrup
iii. meat vs. filet mignon
iv. gasoline right after a major hurricane vs. gasoline over that entire summer
i. Water is a necessity whereas diamonds are not. Therefore, diamonds have the more price elastic demand.
ii. There are many brands of cough syrup yet insulin has no substitutes. Therefore, cough syrup has the more price elastic demand.
iii. Filet mignon is a subset of meat in general and thus has more substitutes. Therefore, filet mignon has the more price elastic demand.
iv. Demand is more price elastic, the longer the time period because people have more time to search out or develop substitutes. Therefore, gasoline over the course of the summer had more price elastic demand .
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For the classical economists, the quantity theory of money provided an explanation of movements in the price level. Changes in the price level result
A) from proportional changes in the quantity of money. B) primarily from changes in the quantity of money. C) only partially from changes in the quantity of money. D) from changes in factors other than the quantity of money.
“Cream skimming” usually results in
A. cross-subsidization of markets. B. subsidies to rural consumers of the service. C. regulations to provide universal service. D. monopoly.