Question

In: Economics

Which of the following values is most likely to be the elasticity of demand coefficient for...

Which of the following values is most likely to be the elasticity of demand coefficient for insulin? Select one: a. -400.00 b. -100.00 c. -0.05 d. -1.00

Solutions

Expert Solution

Elasticity measures the change in aggregate quantity demanded for a good or service in relation to change in price.If the quantity demanded of a product changes a lot due to the change in price ie increase or decrease in price,it is referred as elastic demand.Again if the percentage change in quantity demanded is less than the percentage change in price, it is referred to as inelastic demand.

Insulin is highly inelastic as for diabetic patients the demand for insulin will be less affected by increase in price.Price decrease also do not affect the quantity demanded.Since there are no good substitutes, a diabetic patient will buy insulin whatever be the price.So insulin is insensitive to changes in price. So elasticityof demand cofficient for insulin will be less than one.However insulin is also not a perfectly inelastic good.

Here elasticity of demand coefficent for insulin will be less than 1.

Here answer is c)-0.05.A value that is less than 1 points out  that the demand is insensitive to price ie demand is inelastic.


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