ECO 365 Week 1 DQ 4

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Below are estimated price elasticities of demand for several products (note: the “negative” sign is assumed). Use these estimates to answer the following questions:
A) Discuss what each one of the numbers mean:
B) Look in the text at the four factors that affect the number of substitutes a good has and use them to EXPLAIN why EACH of the goods are either very elastic, a little elastic, a little inelastic, or very inelastic.
Beef .64
Bread .15
All Food .24
Tobacco .50
Gasoline (Short Run) .20
Gasoline (Long Run) .70
Houses 1.20
Restaurant Meals 2.30
New Cars 4.00
Answer:
A) The following goods are inelastic (price elasticity of demand <1). This means that the quantity purchased will fall (rise) by a smaller percentage than the increase (decrease) in price. (This means, in general, you make a bit more money by raising your prices a bit. If you can anyway. We’ll discuss competition later in the course.)
Beef .64
Bread .15
All Food .24
Tobacco .50
Gasoline (Short Run) .20
Gasoline (Long Run) .70
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