For each of the following pairs of goods, which of the two goods has the greater price elasticity of demand?
Due to the rules of eNotes, I cannot answer with regard to both of these pairs. We can only answer one question at a time. I will answer with regard to the two types of musical recordings.
Price elasticity of demand refers to how much the quantity demanded (QD) of an item will change as the item’s price changes. If a change in price leads to a large change in QD, the item’s demand is elastic. If a change in price does not lead to much of a change in QD, demand is inelastic.
There are two major factors that determine if demand will be elastic. First, there is the question of how badly you need the item. If you are required to buy something (because it is needed for your health, for your job, or for school, for example) you will tend to buy it regardless of price and its demand will be inelastic. Second, there is the question of how many substitutes exist for the item. The more substitutes there are, the more elastic demand will be. It is this second factor that applies in the case of the musical recordings.
The demand for the Beethoven recordings will be more elastic than the demand for the classical music recordings because there are more substitutes for Beethoven. If you like classical music, you could buy recordings of any number of composers other than Beethoven. There are fewer substitutes for classical music recordings in general. If you like classical music, you might not think that a jazz recording or a rock and roll recording is a good substitute. Therefore, there are more substitutes for the Beethoven recordings and the demand for them is more elastic.
Here's the full Question: Consider each of the following pairs of goods. For each pair, state which of the two goods has the greater price elasticity of demand. Carefully explain your answers.
a. Mystery novels and text books.
b. Beethoven recordings and classical music recordings.