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E202Solutions3.1 - Problem Set Three Solutions Chapter 4 4...

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Problem Set Three Solutions Chapter 4 4. Is the demand for a particular brand of car, like a Chevrolet, likely to be more or less price- elastic then the demand for all cars? Explain. Answer : The price elasticity of a good generally increases with the number of substitutes it has. It is easier to substitute a Ford or Toyota for a Chevrolet than it is to substitute a motorcycle or a skateboard for a car. Thus the market demand curve for cars is likely to be less elastic with respect to price than the market demand curve for Chevrolets. 5. Among the following groups – senior executives, junior executives, and students – which is likely to have the most and which is likely to have the least price-elastic demand for membership in the Association of Business Professionals? Answer : The more income a person has, the smaller a given expenditure will be as a proportion of her overall budget, and hence the less likely she will be to respond dramatically to a price change. Thus senior executives, the most highly paid of the three groups, should have the least
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