Economics Homework Three Answers - Student Fifteen

IsaacZ

1.A product that has large price elasticity is a computer or game system.

Good.

2. Income elasticity is how much the demand would increase when peoples incomes increase.

Correct, but note it is specific for each good. (Full credit)

3.a. horizontal b. vertical

Correct.

4. "Necessity" is the name given to goods with a price elasticity of less than one because those goods will always be bought. "Luxury" is the name given to goods with a price elasticity over one because if you raise the price not many people will buy them.

Your explanation for "necessity" is a bit oversimplified. It still satisfies the Law of Demand, it just does not see much decrease in demand when its price increases. The statement about "luxury" is wrong because it (like "necessity") is defined based on income elasticity rather than price elasticity. (The question was mistakenly worded.) (Minus 1)

5. A substitute for french fries may be fruit or vegetables. A complement of french fries is ketchup.

Excellent.

6. An example of a "normal" good is butter. An example of an "inferior" good is margarine.

Good, but not original since the lecture said the same thing. But that's allowed. (Full credit)

7. A price control set below the equilibrium causes a supply shortage because since the price is low the demand increases the supply is unable to meet the demand.

Good, but note that supply itself decreases due to the price ceiling. (Minus 1)

68/70. Good work.--Andy Schlafly 23:48, 27 September 2009 (EDT)