Question

Consider some determinants of the price elasticity of demand:

•	Availability of close substitutes
•	Whether the good is a necessity or a luxury
•	Whether the good is broadly defined
•	The proportion of a consumer's budget spent on the good
•	Time people have to adapt to new price changes

A good without any close substitutes is likely to have relatively(elastic or inelastic)demand, because consumers cannot easily switch to a substitute good 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 least elastic demand?

Chemotherapy for cancer patients

or

Yacht

Price elasticity for a good depends on the share of a consumer's budget spent on a good. Other things being equal, which of the following goods has the most elastic demand?

TV and Internet service plan

or

Toothbrush

or

Lightbulbs

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
Pants
Clothing
Boot-cut jeans

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

Compared to the short-run demand for oil, the demand for oil in the long run will tend to be(less, more or no more no less) elastic.

Answer 1

(1) A good without any close substitutes is likely to have relatively inelastic demand.

(2) Chemotherapy for cancer patients has least elastic demand since this is necessity.

(3) TV and Internet service plan has more elastic demand since its share of budget is higher compared to other two goods.

(4) The broader (narrower) a good is defined, the less (more) elastic its demand.

Pants - In-between

Clothes - Least elastic

Boot-cut jeans - Most elastic

(5) The demand for oil in the long run will tend to be more elastic.