Author Question: What makes the demand for some goods elastic and the demand for other goods inelastic? What will ... (Read 57 times)

asan beg · **on:** Jun 29, 2018

What makes the demand for some goods elastic and the demand for other goods inelastic?

What will be an ideal response?

Question 2

If the economy experiences a negative supply shock, which of the following will be true?

A) Inflation will fall, and real GDP will fall. B) Inflation will rise, and real GDP will rise.
C) Inflation will fall, and real GDP will rise. D) Inflation will rise, and real GDP will fall.

CharlieArnold · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The magnitude of the price elasticity of demand for a good depends on three main influences:
Closeness of substitutes. The more easily people can substitute other items for a particular good, the larger is the price elasticity of demand for that good.
The proportion of income spent on the good. The larger the portion of the consumer's budget being spent on a good, the greater is the price elasticity of demand for that good.
The time elapsed since a price change. Usually, the more time that has passed after a price change, the greater is the price elasticity of demand for a good.

Answer to Question 2

D