/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 51 For which of the following two i... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 4: Problem 51

For which of the following two items would you expect demand to be elastic and for which inelastic: cigarettes, jewelry.

Short Answer

Expert verified
Cigarettes: Inelastic demand; Jewelry: Elastic demand.

Step by step solution

01

Define Elastic and Inelastic Demand

Elastic demand refers to situations where a small change in price leads to a large change in quantity demanded. Inelastic demand is characterized by a situation where a change in price leads to a relatively smaller change in quantity demanded.
02

Analyze Cigarettes

Cigarettes are typically considered a necessity for those who are addicted to nicotine. This means that demand does not change much even if the price changes, indicating inelastic demand.
03

Analyze Jewelry

Jewelry is generally a luxury item, meaning people are more likely to buy it when prices are lower. Thus, if prices increase, quantity demanded decreases significantly, indicating elastic demand.
04

Comparison and Conclusion

Based on the analysis, cigarettes have inelastic demand due to their necessity-driven nature, whereas jewelry has elastic demand as it is a luxury item.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Inelastic Demand
Inelastic demand occurs when a change in price leads to a relatively small change in the quantity demanded. This concept is crucial for understanding markets where products are considered necessities.

Imagine a product that you need every single day. No matter how its price fluctuates, you continue to buy about the same amount.
  • Example: Cigarettes - For many people, cigarettes are a necessity because of addiction. This means that even if the price goes up, the amount they buy doesn鈥檛 change much.
  • Characteristics: Products with few substitutes, essential items, and goods with small variations in consumption regardless of price changes.
  • Consequence: Businesses can increase prices without losing much sales volume.
This adaptation in buying behavior denotes inelasticity. If demand is inelastic, businesses may have more pricing power, meaning they can increase prices without significantly decreasing their sales volume.
Elastic Demand
Elastic demand is characterized by a significant change in the quantity demanded when there is a small change in price. This type of demand is typical for items that are not essential and that consumers can easily do without.

Consider luxury items or goods where consumers are price-sensitive.
  • Example: Jewelry - Jewelry is often considered a luxury. If the price of jewelry goes up, people buy significantly less because they can choose not to purchase luxury items.
  • Characteristics: Presence of substitutes, luxury goods, and sensitive to price changes.
  • Consequence: Price increases can lead to substantial drops in sales, which affects overall revenue.
Understanding elastic demand is vital for businesses because it helps in setting prices appropriately to avoid losing customers. If demand is elastic, even a slight price increase might lead to a large drop in sales.
Luxury Goods vs. Necessity Goods
The differentiation between luxury and necessity goods plays a fundamental role in understanding demand elasticity.

  • Luxury Goods - These are items that are not essential for everyday life. Consumers typically buy them when they feel financially comfortable. Examples include designer clothes, high-end electronics, and jewelry. The demand for luxury goods is often elastic, as consumers will quickly cut back on such non-essential purchases if their prices rise.
  • Necessity Goods - These are essential for daily living. Necessities, such as groceries, water, and electricity, tend to have inelastic demand since consumers must continue buying them regardless of price changes.
This distinction is important for setting business strategies and understanding consumer behavior. Luxury goods firms may engage in wide advertising and branding strategies to make their products appear more indispensable, while necessity good providers might focus on ensuring consistent supply and availability.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Which type of compounding would give the shortest doubling time for a fixed interest rate: daily, continuous, or anmual? Which would give the longest?

Bank Failures The cumulative number of bank failures since 2005 during the "great recession of \(2008^{\prime \prime}\) was $$F(x)=\frac{360}{1+11,000 e^{-2.3 x}}$$ where \(x\) is the number of years since 2005 . Find \(F^{\prime}(4)\) and interpret your answer.

Solar Cells Cumulative world production of solar cells for generating electricity is predicted to be \(16 e^{0.43 t}\) thousand megawatts, where \(t\) is the number of years since 2010 . Find the rate of change of this quantity at the value of \(t\) corresponding to 2020 and interpret your answer. [Note: Three thousand megawatts is enough to power a million homes.]

Choose the correct answer: \(\frac{d}{d x} \ln x=\quad\) a. \(\frac{x}{1} \quad\) b. \(\frac{1}{x} \quad\) c. \( 0\)

For \(r \%\) interest compounded annually, the doubling time is approximately \(\frac{72}{r}\) years. For example, to estimate the doubling time for an investment at \(8 \%\) compounded annually we would divide 72 by 8 , giving \(\frac{72}{8}=9\) years. The 72 , however, is only a rough"upward adjustment" of 69 , and the rule is most accurate for interest rates around \(9 \%\). For each interest rate: a. Use the rule of 72 to estimate the doubling time for annual compounding. b. Use the compound interest formula \(P(1+r)^{t}\) to find the actual doubling time for annual compounding. \(1 \%\) (This shows that for interest rates very different from \(9 \%\) the rule of 72 is less accurate.)
See all solutions

Recommended explanations on Math Textbooks

Decision Maths

Read Explanation

Geometry

Read Explanation

Pure Maths

Read Explanation

Discrete Mathematics

Read Explanation

Logic and Functions

Read Explanation

Probability and Statistics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.