Question

2. On reading this paragraph, what can you conclude about the elasticity of demand for

museum admissions. Do you think that that museum admissions have a relatively elastic

demand? If yes, why and if no your answer should be backed by suitable evidence from the

passage and your own understanding of the concept. Draw the type of demand curve you

would expect for museum admissions and provide the range for the possible values of

elasticity.

The willingness of visitors to keep coming even with admission fees rising may be

attributable to what economists call the elasticity of demand — the degree to which price

affects the volume of demand. The large number of people who want to go to some of the

most expensive museums make those institutions less willing to lower or eliminate admission

fees. Certain products are more sensitive to the budget restraints of consumers, but museum

admissions might not fall into that category. Even at $20-plus per person, the price may seem

“low because museums are still very cheap entertainment, and they are special occasions,”

said Gerald Friedman, an economics professor at the University of Massachusetts. “You

won’t shun the Uffizi to save a few dollars after taking the trouble and expense to get to

Florence, Italy.” Or New York City or Boston or Chicago, the argument would go.

Out-of-state and international visitors to the Metropolitan annually account for 50 to 55

percent of the total attendance. Those people are spending a considerable amount of money

on transportation, hotels, and dining, making even the museum’s top suggested fee of $25

seem modest in comparison, according to Wells Fargo Bank chief economist John Silvia.

“Because of the wealth and foreign visitors in New York City, there is very little price

elasticity,” he said. “They can probably charge much more and not lose a customer.”

Answer 1

The conclusion for the elasticity of demand in this case is that, the (price) elasticity of demand is inelastic. The museum do not have a relatively elastic demand, as "The willingness of visitors to keep coming even with admission fees rising", "The large number of people who want to go to some of the most expensive museums make those institutions less willing to lower or eliminate admission fees" and "They can probably charge much more and not lose a customer". Elasticity is the percentage change in quantity due to a unit percentage change in price. For a unit percent increase in price, the demand is

• elastic if the change in quantity demanded is (much) more than a percent.
• inelstic if the change in quantity demadned is less than a percent.
• unitary elastic if the change in quantity demadned is equal to a percent.

In this case, the increase in price wouldn't decrease the demand much, suggesting that the demand is inelastic. If for the same change in price, the demand would decrease more than the price (much less people coming), then the demand would have said to be relatively elastic, which is not the case as presented.

As can be seen, the prices are significantly raised from P3 to P2 to P1, but the quantity changes are quite less as from Q3 to Q2 to Q1. The value of elasticity for inelastic demand ranges between 0 (perfectly inelastic) to 1(unitary elastic). Perfectly inelastic demand is rarely found, which indicates that however the price ranges, demand is constant.