Chapter 47, Problem 1FRQ

a)

To determine

Price elasticity of demand for the good

Explanation of Solution

  

Price elasticity of demand for the good is 0 because change in price does not affect the demand of the good. And, therefore, this is perfectly inelastic.

Economics Concept Introduction

Introduction: Price elasticity of demand refers to the measure how the demand is sensitive to price or how the change in price affects the demand of the good.

b)

To determine

The slope of the demand curve for the good

Explanation of Solution

The slope of the demand curve for the good is vertical which shows the slope of the curve is 0 due to no effect of price on demand.

Economics Concept Introduction

Introduction: Price elasticity of demand refers to the measure how the demand is sensitive to price or how the change in price affects the demand of the good.

c)

To determine

Whether good is necessity or luxury

Explanation of Solution

As the demand of the good does not respond to price changes, therefore is good is more likely to be a necessity. No matter what the price is, the demand of necessities remains same.

Economics Concept Introduction

Introduction: The demand for luxury goods rises only when there is a large increase in income but the demand for necessities remains same regardless of income and price.