Economics Homework Three Answers - Student Five

TrishaM

1\. A good that has a large price elasticity would be a 50 cent candy bar. If its price were lowered to, say, 35 cents, then there would be a much higher demand for it as people would rush to make good on the reduced price!

Terrific.

2\. Income elasticity is the concept of how many luxuries we tend to buy depending on whether our income at the time is high or low. If our income is lower than normal, we are much less likely to buy many luxuries than when our income is high.

Correct, note that income elasticity is good specific.

3\. A nearly perfectly elastic demand curve is nearly horizontal in shape; a nearly perfectly inelastic demand curve is nearly vertical in shape.

Correct.

4\. A necessity is something that will be bought at the same rate and have the same demand for even in hard times while a luxury is something that will not be bought at the same rate and will not have the same demand for in hard times. Usually the demand for a luxury will decrease and the rate at which it will be bought up will slow down.

Good, but incomplete. A necessity is income inelastic; a luxury is income elastic. (Minus 1).

5\. A substitute for french fries would be onion rings, while a complement would be a box for the fries to be served in.

Correct.

6\. Just suppose you do not own a cow, but happen to be lucky enough to live near someone who does and who sells the milk produced by it. If your income is high, you will probably be able to buy some of the expensive, but deliciously creamy, "real milk". However, if your income is low and you simply can't use any of your money on this milk, you will probably be forced to resort back to the infinitely inferior milk sold in stores. The milk from the cow is a "normal good" and the milk sold in stores is an "inferior" good.

Excellent answer.

7\. A price ceiling set below the equilibrium of supply and demand will cause a shortage in supplies because the suppliers will not be willing to sell their goods at such a low price. Since the demand for this item is high, all the goods will be bought up quickly, leaving some people out of the deal.

Correct, but note that demand increases when price is lowered artificially.

Excellent: 69/70. Congratulations!--Andy Schlafly 22:42, 26 September 2009 (EDT)