5. Write one word in each gap to complete the sentences.

1. When we talk about the “demand” for a______, we mean more than the desire tosimply have or to own the item.

2. In order fordemand to be counted in the marketplace,desire must be coupled with the ability and______ to pay for a product or service.

3. Elasticitytells us how adependent variable, such as quantitydemanded, ______ to a change in anindependent variable, such as price.

4. A decrease in demand ______ as a shift to the left.

5. What might cause a change in _____for CDs?

6. At a price of $15,for example, _____ are now willing tobuy 10 CDs instead of 6.

7. When this information istransferred to the graph, the demand ______appears to have shifted to the right.

8. When demand changes, a new scheduleor curve must be constructed to reflect thenew _____ demanded at all possibleprices.

9. Elasticity is a general _____ that can alsobe applied to other measures such asincome or supply.

10. The way people think about the futurecan _____ demand.

5. A. Read the text. Number the following words with their underlined equivalents in the text.

customers	substitutes	plummet	considerable	postpone	trends	obtain
significant	response	search	a rise	refer	demand	deflect

Can the Purchase Be Delayed?

Persons with diabetes needinsulin to control the disorder. An increasein its price is not likely to make diabetessufferers delay buying and using the product.The demand for tobacco also tends tobe inelastic because the product is addictive.As a result, a sharp increase in pricewill lower the quantity purchased by consumers,but not by very much. The changein quantity demanded is also likely to berelatively small for these products whentheir prices go down instead of up.If the products were corn, tomatoes, orgasoline from a particular station, however,people might react differently to a pricechange. If the prices of these products wereto increase, consumers could delay buyingany of these items without suffering anygreat inconvenience.The table after the textsummarizes some of theseobservations. If the answer to the question“Can the purchase be delayed?” is yes, thenthe demand for the product is likely to beelastic. If the answer to the question is no,then demand is likely to be inelastic.

Are Adequate SubstitutesAvailable?

If the priceof beef goes up, buyers can switch tochicken. With enough substitutes, evensmall changes in the price of a product willcause people to switch, making the demandfor the product elastic. The fewer substitutesavailable for a product, the moreinelastic the demand.Sometimes only a single adequate substituteis needed to make demand elastic.For example, in the past there were fewsubstitutes for sending a letter through thepost office. Then fax machines allowedmessages to be transmitted over phonelines. Today many people use e-mail on theInternet or send instant messages on theircell phones. Because of all these alternatives,it is more difficult for the PostalService to increase its total revenues byraising the price of a first-class stamp.

Note that the size of the market is important.For example, the demand for gasolinefrom a particular station tends to be elasticbecause consumers can buy gas at anotherstation. If we ask about the demand forgasoline in general, however, demand ismuch more inelastic because there are fewadequate substitutes for gasoline.

Does the Purchase Use a LargePortion of Income?

Finally, you may have noticed that theanswers to our three questions is not always“yes” or “no” for each of the products shownin the table after the text. For example, some productssuch as salt may be easy to classify, sinceeach of the answers is “no”. However, wehave to use our judgment on others. Forexample, the demand for the services ofmedical doctors tends to be inelastic eventhough they require a large portion ofincome. This is because most people preferto receive medical care right away ratherthan taking the time to look for adequatesubstitutes.

C. Study the table below.

D. Comment on the following questions.

1.Can the elasticity of demandbe estimated by examining the answers to threekey questions?

2. Do all three answers have to be the same in order to determineelasticity?

3.Can an answer to a single question be so important that italone might override the answers to the other two?

4.What is the demand for a product likely to be if the answer to the question“Can the purchase be delayed?” is yes? What is the demandif the answer to the question is no?

5. If you applied the three questions to a luxury product,what would be the elasticity of demand for that product?

6. Can you think ofother goods with inelastic demand? Why is thedemand for those goods inelastic?

7.How do consumers react to price changes onproducts with elastic, inelastic, and unit elastic demand?

D.Based on the table above,create your own chart for the following products: anMP3 player, electricity, a gallon of milk, an ink pen, anda pound of onions. Explain.

R E A D I N G