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Textbooks / Business / Principles of Economics 6 / Chapter 5 / Problem Problems and Applications 5.13

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand

Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw ISBN: 9780538453059 472

Solution for problem Problems and Applications 5.13 Chapter 5

Principles of Economics | 6th Edition

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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw

Principles of Economics | 6th Edition

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Problem Problems and Applications 5.13

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was).

a. What happens to the equilibrium price and quantity in each market?

b. Which product experiences a larger change in price?

c. Which product experiences a larger change in quantity?

d. What happens to total consumer spending on each product?

Step-by-Step Solution:

Step 1 of 2

The elasticity of demand presents the actual magnitude of demand change when the law of demand applies to the product. Law of demand answers that demand falls when the price rises, but the elasticity of demand answers “by how much”.

Step 2 of 2

Chapter 5, Problem Problems and Applications 5.13 is Solved
Textbook: Principles of Economics
Edition: 6
Author: N. Gregory Mankiw
ISBN: 9780538453059

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Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand