Question

This is a highly controversial topic that has been debated from many points of views: politics, ethics, religions, and so on. Or you might think this is a highly personal decision in which economics could not play a role. Even in something as personal as abortion or liver transplant, prices and incomes seem to matter. A study regarding abortions shows that where and when the price of an abortion is higher, the number of abortions is lower; and this is consistent with the law of demand.

a) If the price elasticity of demand for abortions is around 1 (or unit elastic), what does this mean? Explain by giving an example.

b) If the income elasticity of demand for abortions is around 0.5, what does this mean? Is abortion considered as a normal good or inferior good? Is it a necessity good or a luxury good?

c) Take another delicate procedure: liver transplants. Would you think the demand for liver transplants is more or less price-elastic than the demand for abortions? Explain your reasoning.

Answer 1

Ans. a) If price elasticity of demand for abortions is 1 ie unit elastic , then % change in price charged for abortion would lead to a % change in the demand for abortions. For eg : If Price of a Abortion increases by 10% , then Demand for Abortions would decrease by 10% .

b) If the income elasticity of demand for abortions is 0.5 , then increase in income of the person would lead to an increase in demand for abortions. Abortion is considered as a normal good.

c) Demand for liver transplant should be less price elastic than the demand for abortions because liver transplant is more of a necessity than abortion.

Best of luck !! !!