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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Would you expect supply to play a more significant role in determining the price of a basic necessity like food or a luxury like perfume? Explain. Hint: Think about how the price elasticity of demand will differ between necessities and luxuries.

To determine

How can we say that supply plays an important role in determining the price of necessities and luxury goods? (Think about elasticity of demand for necessity and luxury goods).

Explanation

The elasticity of demand for necessities is inelastic it means if the price changes, the demand for necessities would not change at all. So, the supply of necessities decide its price because people cannot easily shift on other goods and have to buy the product at whatever quantity is supplied at any price because product is essential for the survival...

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