Defend the reason for the foll
Defend the reason for the following, using elasticity of demandas the basis for your answer. Motivate your answer with the aid ofexamples. 2.1.1 Narrowly defined markets tend to be associated witha more price elastic demand than broadly defined markets. (6) 2.1.2Goods tend to have more price elastic demand over large timehorizons. (6) 2.1.3 Necessities tend to have relatively inelasticdemands, whereas luxuries have relatively inelastic demand. (6) 2.2Read the scenario below and answer the question that follows:George Richard is a farmer who is also a skilled metal worker. Hemakes unique garden sculptors that could earn him R400 per hour.One day he spent 10 hours planting R5 000 worth of seeds on hisfarm. 2.2.1 Measure George’s opportunity cost. (4) 2.2.2 Determinethe cost that is measured by his accountant. (4) 2.2.3 If the seedsGeorge planted yield R10 000 worth of crops, argue the point thatGeorge does earn an accounting profit. (4) 2.2.4 Would you adviseGeorge to continue as a farmer or switch
Answer:
2.1.1
Narrowly defined markets tend to have elastic demand since it iseasier to find a close substitute of a product in a narrow market.For eg,demand for vanilla ice cream is a narrow market because ifprices of vanilla flavoured ice cream increases consumer can easilyshifts to other flavour. Therefore demand of products in a narrowlydefined market is elastic
While broadly defined market tends to have inelastic demandbecause products in broadly defined market have no closesubstitutes.Hence if prices of such goods increses, consumers haveno choice but to buy products at increased prices.For eg, Milk.There is nearly no substitute for milk .when price of milkincreases consumers have no choice to buy milk at increasedprices.
2.1.2
Goods have inelastic demand in short run while they have elasticdemand in long run. In short run,it is very difficult to change thehabits of consumers and so demand is inelastic while it is possibleto change the habits in the long run so demand is elastic in longrun. For eg, if price of petrol rises,demand slightly falls in theshort run while in the long run people shift to more fuel efficientor use public transport and so price changes more in long run.
2.1.3
Price elastiicty of demand depends on the very nature of thecommodity.If the product is a necessity like vegetables or grainstend to have inelastic demandBecause if the prices of such goodsincreases people cannot stop using these goods since they arerequired for very survival of humans.Demand of such goods cannotfluctuate with prices.
While if th procduct is a luxury,demand is elastic since thedemand of such good is very sensitive to price. For eg,car.Demandof car is elastic because car is a luxury and is not required forsurvival and hence when prices of car increases,consumer postponeor cancel its purchase
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
