Question

Assignment:

Using what we have learnt about the price elasticity of demand, and what we remember about short run and long run price elasticities (Chapter 2 of Perloff (2017)), along with substitution and income effects (Chapter 4 of Perloff (2017)) as a guide, choose a particular product (good or service) which you or your family purchased during the recession of 2007 – 2009, or choose a particular good which you or your family purchased at least 2 years ago (before the start of the pandemic in 2020). You may or may not be purchasing the product this year or since March 2020. Give a general description of this product in terms of its relationship with income and its relationship with price. Then discuss your (or your family’s) spending behavior prior to the major event (recession or pandemic), and now. If you or your family no longer purchase this product, discuss why. Be sure to include in your discussion the price changes (increase or decrease, using specific values if available), how you or your family responded to these changes, and whether this product is more price elastic or price inelastic in the long run (compared to the short run).

Reference: Launch the Perloff, Microeconomics: Theory and Applications with Calculus 4 or 5

Answer 1

Answer :

Let the good bought be an air-conditioner purchased in 2018 as the salaries were at a rise for the family and with increase in salary, family purchased an air-conditioner. In 2020, after the pandemic, family pay has reduced definitely because of loss of jobs, downturn and lower demand for goods as individuals attempt to speculate and put something aside for healthcare and future contingencies because of the vulnerability made. In this way, the family wont yet it in 2020 as airconditioner is an expensive product which makes it price elastic in short run and when factored with pay limitations and the extent of salary to be spent to purchase an air conditioner whose price has increased because of inaccessibility of spare parts to deliver these goods will prompt an elastic demand even in long run. Family reacted to this reality by not accepting expensive things and set aside cash for future contingencies and necessities.

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