Reference no: EM13112645

1.) For each of the following pairs of goods or services, identify the one for which the price elasticity of demand is greater and explain why.

- Coffee/Starbucks coffee.
- Tuition at a public university/tuition at a private university.
- Emergency room medical services/annual physical exam.
- Movies in the afternoon/movies at night.
- Prescription medicine/over the counter medicine.

2.) Although water is essential to life no matter where one lives, the demand for water differs across regions. In one study, it was found that the price elasticity of demand for water in all regions of the United States ranged from 0.39 to 0.69.

a.) Why is the demand for water price-inelastic?
b.) In those regions where outdoor use of water makes up relatively large portion of total use, the price elasticity is high. Why?
c.) The demand for water in the summer months is greater than in the winter months. Explain why.

3.) The income elasticity of demand for automobiles in the United States was estimated by a government agency to be between 2.5 and 3.9.
a.) What does this mean?
b.) If incomes rise by 10 percent, what happens to the purchase of automobiles?

4.) Explain why the demand curve is a horizontal line in the situation called perfect competition.

5.) The demand curve slopes downward. Explain.

6.) What would happen to the demand curve in each of the following cases:

a.) Income rises.
b.) The number of customer rises.
c.) The number of substitutes increases.
d.) People expect that the price of the good will decline in the near future.
e.) People expect that the price of the good will rise in the near future.

7.) Using elasticity, explain what "market power" means.