ECON1001课件.ppt

Q2. For which of the following products is demand likely to be least price elastic? Frozen Food Soft Drinks Groceries Diet Coke Not enough information provided to answer this question Ans: c 精品文档 What affects Price Elasticity of Demand? One major factor is the availability of substitutes. If there are many substitutes for Good X available in the market, people tend to be very responsive to changes in PX, and hence, higher elasticity. In this question, we check out which option is the most difficult to be substituted. 精品文档 (A) Frozen food can easily be replaced by fresh food. So as (B). (D) Not difficult to find substitutes to soft drinks, especially a particular brand. (C) Groceries are the hardest to be replaced as they are necessities. 精品文档 Q3. If the price is $2 in both locations, the Price Elasticity of Demand for a candy bar at an airport is likely to be the price elasticity for a candy bar in a grocery store. A) Less than Equal to Greater than The reciprocal of Not enough information to determine Ans: a 精品文档 What affects Price Elasticity of Demand? Number of sellers within reach. Suppose there exists only one kind of candy bar. In busy areas where you can find grocery stores, it is more likely that you can find more than one shop selling candy bars. However, in isolated areas such as airports, there may only be one seller. (In fact, it is usually the case for certain shops to be the only authorised dealer in places like airports and MTR stations) 精品文档 In other words, one will find it difficult to locate an alternative seller of a certain goods (e.g. candy bars) at the airport. A person will still have to buy candy bars from that seller at the airport even if prices are raised. Hence, quantity demanded is less responsive to price changes compared to shops are other locations. 精品文档 Q4. The Price Elasticity of Demand for apartments is 1.3, while the Price Elasticity of Demand for toothpicks is 0.4. The likely reason for the difference