Chapter 4, Problem 1TY

To determine

(a)

To analyze the demand curve of medicine that means life or death for a patient.

Answer to Problem 1TY

The demand curve will be a vertical straight line.

Explanation of Solution

Elasticity of demand refers to the degree of responsiveness of a change in the quantity demanded for a given change in the price level of a good.

When the percentage change in quantity demanded exceeds the percentage change in price, the demand is said to be elastic.

When it is less than the percentage change in price, then the demand is said to be inelastic. When the percentage change is equal, then the demand is unitary elastic.

The shape of a demand curve depends on the elasticity of demand for a good. A medicine that means life or death for a patient is a necessary good for the patient. Hence, its demand is perfectly inelastic.

The curve of perfectly inelastic demand is shown below:

 

The graph shows that whatever be the price charged for the medicine, the patient will purchase it because it means life or death for him. Hence, this kind of demand curve is a vertical straight line with elasticity 0.

To determine

(b)

To analyze: the demand curve of French fries in a food court with kiosks offering many types of food.

Answer to Problem 1TY

The demand curve will be flat in shape.

Explanation of Solution

Elasticity of demand refers to the degree of responsiveness of a change in the quantity demanded for a given change in the price level of a good.

When the percentage change in quantity demanded exceeds the percentage change in price, the demand is said to be elastic.

When it is less than the percentage change in price, then the demand is said to be inelastic. When the percentage changes are equal, then the demand is unitary elastic.

The shape of a demand curve depends on the elasticity of demand for a good. French fries are good with many other substitutes. K are offering a variety of other goods which makes demand curve of French fries more elastic.

The curve of this demand is shown below:

 

The graph shows that a slight increase in the price of French fries will make consumers shift their preferences to other goods. Hence, the quantity demanded will decrease largely. This type of demand curve is flat with an elasticity greater than 1.