Economics: Price Elasticity and Market Structures

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Author Note

ECONOMICS1
Table of Contents
Task 2.........................................................................................................................................2
Question 1..............................................................................................................................2
Question 2..............................................................................................................................2
Question 3..............................................................................................................................2
Task 3.........................................................................................................................................3
Question 1..............................................................................................................................3
Question 2..............................................................................................................................3
Question 3..............................................................................................................................3
Task 4.........................................................................................................................................5
Question 1..............................................................................................................................5
Question 2..............................................................................................................................6
Task 5.........................................................................................................................................6
Question 1..............................................................................................................................6
Question 2..............................................................................................................................6
Question 3..............................................................................................................................7
Question 4..............................................................................................................................7
Question 5..............................................................................................................................8
References..................................................................................................................................9

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Task 2
Question 1
Prescription medication is a necessary product. For necessary product price is
inelastic if there is no close substitute. In this case, prescription medication cannot have
substitutes because only prescribed medicines must be consumed, hence price is inelastic. 3D
television is costly product and its change in price changes demand significantly making it
highly elastic. Therefore, 3D television is more elastic.
Question 2
Coffee sold in a café belongs to normal good category and it does have substitutes
like tea. Hence, change in its price will definitely change its demand as consumers have other
choice to opt for (Colchero et al. 2015). However, in the case of electricity, there is no
substitute and it belongs to necessary good and is inelastic. Thus, coffee is more elastic in this
case.
Question 3
Cross Price Elastcity= Percentage change∈quantity demanded of tyres
Percentage chnage∈price of cars
¿
21000−25000
25000 ×100
35000−25000
25000 ×100
¿ −16
40
¿−0.4
Tyres and cars are complementary products. Therefore, increase in price of cars will
adversely affect car sales number and thereby demand for tyres will decrease. However, the

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price of tyres has not increased but it is facing decreased sales value (Berry et al. 2014). Tyre
sellers will lower the price to regain some of its market as a result the sale value will increase
but not regain its previous market as number of cars has decreased. Hence, cross price
elasticity is negative in this case. The computed value of cross price elasticity of demand is -
0.4. This implies, if price of cars increases by 1 percent then demand of tyres decreases by
0.4 percent.
Task 3
Question 1
Licence fee charged by government on every television network is a mandatory cost
to be in the business. Every television network pays this fee while entering the market ad it is
non-refundable and unavoidable. Thus, it is a fixed cost.
Question 2
The price of power boards that Samsung use in its television changed for the new
contract it signed. It will influence the production cost of television. However, it may change
in future as price of power boards can fluctuate, thereby making it a variable cost.
Question 3