a) Classify and draw the demand curves for two goods with the following price elasticities of demand:
i) Price elasticity of demand = ?
ii) Price elasticity of demand = 0
b) Consider two goods: A and B. Good A has many close substitutes, while Good B has only a few. An individual spends an equal amount of his budget on both goods. Given this information, which of the two goods will have a higher price elasticity of demand?
c) Consider two goods: A and B. Both goods have the same number of substitutes, but consumers spend a higher proportion of their income on Good A than on Good B. Given this information, which of the two goods will have a higher price elasticity of demand?

Question

Quizplus · Accepted Answer

The Answer of a) Classify and draw the demand curves for two goods with the following price elasticities of demand:
i) Price elasticity of demand = ?
ii) Price elasticity of demand = 0
b) Consider two goods: A and B. Good A has many close substitutes, while Good B has only a few. An individual spends an equal amount of his budget on both goods. Given this information, which of the two goods will have a higher price elasticity of demand?
c) Consider two goods: A and B. Both goods have the same number of substitutes, but consumers spend a higher proportion of their income on Good A than on Good B. Given this information, which of the two goods will have a higher price elasticity of demand?

A) Classify and Draw the Demand Curves for Two Goods