question archive Suppose that twin eye doctors work across the hall from each other
Suppose that twin eye doctors work across the hall from each other
Subject:EconomicsPrice:2.88 Bought3
Suppose that twin eye doctors work across the hall from each other. Even their parents have trouble telling them apart, and they both went to the same medical school. From this information, we would guess that the price elasticity of demand for either of their services is closest to:
(a) -20.0.
(b) -1.0.
(c) -0.5.
(d) 0.0.
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- The correct answer is (a) -20.0.
In this case, the two doctors are identical in every possible way, so consumers will have no problem switching from one to the other one. In other words, the two doctors are near perfect substitutes to consumers. Hence, when one doctor charges a higher price, even a slightly one, most consumers will switch to the other one. So the price elasticity of demand will be high.
