Question

Explain your answer whenever possible. Show necessary steps and reasoning

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? Refer to determinants of price elasticity of demand
   1. required textbooks or mystery novels
   2. Beethoven recordings or classical music recordings in general
   3. subway rides during the next 6 months or subway rides during the next 5 years
   4. root beer or water

Answer 1

Answer

1. Required textbooks or mystery novels : The mystery novels have more elastic demand than the required text books. The required text books are necessary goods. So the change in price of a required text book won't affect its demand much. In case of the mystery novels, there are many substitutes of mystery novels. The higher the availability of substitutes, the higher will be options to choose. As a result, if the price of a mystery novel increases, there will be many other mystery novels to choose from. So the change in price highly affects the demand for mystery novel. As a result, the mystery novels have more elastic demand than the text books.

2. Beethoven recordings or classical music recordings in general : The Beethoven recordings have more elastic demand than the classical music recordings in general. The Beethoven recordings have many substitutes, like Mozart, Frederic Chopin,Tchaikovsky, in the market. So the change in price highly affect the demand for Beethoven recordings. The classical music recordings is a particular genre and thus have no substitutes in the market. Thus, the classical music recordings in general have lower elasticity than the Beethoven recordings.

3. Subway rides during the next 6 months or subway rides during the next 5 years : The subway rides during the next 5 years have more elastic demand than subway rides during the next 6 months. The longer the time period, the higher is the price elasticity of demand , as the number of close substitutes rises with time. During the next 5 years, many close substitutes of subway rides will arrive in the market. Thus, the subway rides during the next 5 years have more elastic demand than subway rides during the next 6 months.

4. Root beer or water : The root beer have more elastic demand than water. Water is very essential and its price elasticity of demand is either zero or very low. On the other hand, the root beer has many substitutes in the market and thus the change in price highly affects the demand for root beer. So, the root beer have more elastic demand than water.

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