Question

In: Economics

Predict the elasticity of demand for movies described by each of the following statements. Justify your answers.

Predict the elasticity of demand for movies described by each of the following statements. Justify your answers.

  1. We go to the movies two Fridays out of every month, without exception.

  2. When the price of movies went up to $7, we quit going to regular movies. We now wait for $3.50 Tuesday before we see a movie. (instead of drawing the actual graph, briefly explain the graph instead. Explain all the curves, shifts, points and axis, intersections and labels etc).

Solutions

Expert Solution

Price elasticity of demand refers to the responsiveness of change in quantity demanded of a good to change in its price.

It captures how does quantity demanded changes as price of the good changes. The greater the change in quantity demanded, the more elastic the demand.

Coming to the question:

We go to the movies two Fridays out of every month, without exception:PERFECTLY INELASTIC DEMAND (as consumers do not change their demand with price change)

This implies Price elasticity of demand = 0

When the price of movies went up to $7, we quit going to regular movies. We now wait for $3.50 Tuesday before we see a movie: PERFECTLY ELASTIC DEMAND (as consumer demand falls to 0 when price increases to 7 and becomes positive when price falls to 3.5. This means the individual has elastic demand for movies)

This implies Price elasticity of demand = Infinity

Rahul Sunny answered 1 year ago
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