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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 1TY
Textbook Problem
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What shapes would you expect for the following demand curves?

  1. A medicine that means life or death for a patient
  2. French fries in a food court with kiosks offering many types of food

To determine

(a)

The shape of the demand curve of a medicine which means life or death to a patient.

Explanation of Solution

The demand curve for this type of medicine will be vertical in shape. The consumer will not care about the price of that particular medicine as its demand is perfectly inelastic (large changes in prices will not significantly affect the quantity demanded of the medicine).

This means that the consumer will demand the same number of units of medicines irrespective of the changes in the prices.

Economics Concept Introduction

The demand curve represents the quantity demanded by an individual at various prices. It is usually downward sloping in case of normal goods because of the negative relationship between quantity demanded and price.

To determine

(b)

The demand curve of French fries in the market for food where many food items are sold.

Explanation of Solution

The demand curve in this typical scenario will be of horizontally flat shape because there is perfect information in the market. Even a small change in price would lead to huge changes in the quantity demanded.

Some close (but not perfect) substitutes for French fries are also available in the market leading to a near-horizontal demand curve.

Economics Concept Introduction

The demand curve shows the behavior of a consumer when the price of any good or service is changed. The shape of a demand curve depends on the elasticity of demand.

Perfectly elastic demand exhibits a horizontal demand curve, whereas perfectly inelastic demand exhibits a vertical demand curve.

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