Questions On Price Elasticity Of Demand Essay

Questions On Price Elasticity Of Demand Essay

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1. Answer the following:
A. Define price elasticity of demand. What are the 4 major determinants of
price elasticity of demand and give a short explanation of their impact on elasticity?
B. Define price elasticity of supply. What are the 2 major determinants of
price elasticity of supply?

1. A. Price elasticity of demand is a measure of the degree of responsiveness or sensitive of consumers to a change in price. The first determinant of price elasticity of demand is substituted for the product, which is the more substitutes, the more elastic the demand. Another determinant of price elasticity of demand is the proportion of price relative to income, generally the larger the expenditure relative to one’s budget, the more elastic the demand because buyers notice the change in price more. Another determinant of price elasticity of demand is a luxury or a necessity, which is the less necessary the item, the more elastic the demand. The last determinant of price elasticity of demand is time, which is the longer the time period involved, the more elastic the demand becomes.
B. Price elasticity of supply measures the sellers’ responsiveness to price changes. One determinant of price elasticity of supply is the time period that it takes to adjust production depends on the degree of flexibility, different in different industries. Another determinant of price elasticity of supply is the ease of shifting resources between alternative uses.


2. What information is in a budget line? What information is contained in an indifference curve? What is an indifference map? Where is the point of equilibrium (maximum utility) on the indifference map?





2. A budget line shows all the combinations of any two products that a consumer c...


... middle of paper ...


... or the table in the text on page 221, but put it in essay form.)


5. The characteristics of pure competition are very large number of firms, standardized products, no control over price, no obstacles to entry, easy entry and exit, and no non-price competition. The characteristics of monopolistic competition are, many firms, differentiated products, some control over price in a narrow range, relatively easy entry, and considerable non-price competition. The characteristics of oligopoly are few firms, standardized or differentiated products, control over price limited by mutual interdependence considerable control with collusion, many obstacles to entry, and much non-price competition. The characteristics of pure monopoly are one firm only, unique product with no close substitutes, considerable over price, entry is blocked, and mostly public relations advertising.

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