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Unformatted text preview: Chapter 4 9. (8 pts) Graph the demand curve for a cancer-fighting drug, without which lung cancer patients will die. What is the price elasticity of demand for such a drug? What, in general, determines the price elasticity of demand? Answer : The demand curve would be a vertical (or near vertical) line at the required dosage per month because patients would be willing to pay almost any price to save their lives. The price elasticity of demand for such a drug would be zero (or near zero) as demand is perfectly inelastic (or nearly perfectly inelastic). In general, the price elasticity of demand is determined by availability of substitutes, fraction of income, and adjustment time. 10. (6 pts) Graph the market for diamonds and the market for water to show how it is possible for the price of water to be much lower than the price of diamonds even though the demand for water is much greater than the demand for diamonds....
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.
- Spring '08