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Although basic economic models postulate that the demand for a

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New post Updated on: 17 Feb 2019, 09:53
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Although basic economic models postulate that the demand for a given product is a function of its price, this axiom does not hold true in all economic scenarios. Price elasticity of demand measures the extent to which demand changes when the price of a product rises or declines. Demand is termed very elastic if the price of a product greatly affects demand and very inelastic if the price does not affect demand at all.

As the number of possible substitutions for a product increases, demand for that product becomes more elastic. If the price of a product rises sharply and there are many similar options on the market, demand for the original product will sharply decrease as consumers purchase substitutions instead.

The broader the definition of a product, the more inelastic the demand for that product will be. The demand for cars in general is relatively inelastic; however, when cars are disaggregated into categories, a different picture emerges. The demand for some cars, such as sports cars and luxury vehicles, is inelastic while the demand for cars oriented towards the middle-class family market tends to be elastic.

Elasticity is also affected by the duration of price changes. When the price of a product rises, consumers often keep buying the product out of habit or convenience. As time elapses, consumers change their habits and product substitutions appear, causing demand to drop, increasing its elasticity.

A final determinant of elasticity is the product's necessity to the customer. Thus, products such a bread, water or medication, without which life would not be possible, are all extremely inelastic. On the other extreme, the demand for luxury items was very inelastic in Medieval Europe since nobles and royalty required these items to maintain their status in society.
Q1) What is the function of the first paragraph?

A)The first paragraph discusses basic economic models upon which the following paragraphs elaborate.
B)The first paragraph compares several basic economic models.
C)The first paragraph introduces an economic concept which is defined in the following paragraphs.
D)The first paragraph presents a debate which the following paragraphs resolve.
E)The first paragraph defines an economic concept upon which the following paragraphs expand.


Q2) What is one function of the fourth paragraph?

A)The fourth paragraph provides a basis for understanding the topic discussed in the fifth paragraph.
B)The fourth paragraph expands upon the topic discussed in the third paragraph.
C)The fourth paragraph provides an example of how price elasticity of demand affects the duration of price changes.
D)The fourth paragraph describes a factor that influences the concept defined in the first paragraph.
E)The fourth paragraph introduces a factor which questions the author's view of the concept defined in the first paragraph.


Q3) The author suggests that if sports cars were to cease to be a symbol of luxury and prestige

A)sports cars would become cheaper
B)fewer sports cars would be sold
C)the demand for sports cars would become more elastic
D)more middle-class families would buy sports cars
E)the demand for sports cars would remain inelastic


Q4) The author of the passage is chiefly concerned with

A)introducing several factors which affect price elasticity of demand
B)pointing out the problematic nature of basic economic models
C)describing the economic concept of price elasticity of demand and the factors which affect it
D)demonstrating that price has little effect on demand
E)showing that available substitutions and necessity of a product are the most important factors that affect price elasticity of demand


Q5) The author's discussion of luxury items in Medieval Europe is meant to

A. comment on the state of Medieval European society
B. show that a product can still be considered necessary even if it is not a physical necessity of life
C. prove that the rules of elasticity of demand were the same in the past as they are in the present
D. argue that, to Medieval European royalty and nobles, luxury items were of the same value as bread, water or medication
E. provide an example of how the demand for needed items is always very elastic



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Originally posted by souvonik2k on 12 Jun 2018, 10:29.
Last edited by SajjadAhmad on 17 Feb 2019, 09:53, edited 4 times in total.
Added Q#5
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New post 14 Jun 2018, 05:18
Can someone elaborate why OA of q1 is E? I guess I basically want to determine what constitutes defining vs discussed.
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New post 14 Jun 2018, 05:24
sandman13 wrote:
Can someone elaborate why OA of q1 is E? I guess I basically want to determine what constitutes defining vs discussed.


Hi,

The difference is not between defining and discussed but between "discussing different models" and "defining a concept". Paragraph 1 defines price elasticity and elaborates on the factors that influence the said concept later on; it does not discuss any economic model per se. Hence, E.
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New post 14 Jun 2018, 09:10
sandman13 wrote:
Can someone elaborate why OA of q1 is E? I guess I basically want to determine what constitutes defining vs discussed.


Option A is talking about Economic model while option E is talking Economic concept. Economic model for example can be Capitalistic or Socialistic. Economic concept can supply, demand, Elasticity etc.
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New post 15 Jun 2018, 03:23
Hi urvashis09,

Could you help me choose between C and E , I find both the answers almost the same except the two words in the choices 'defines' and 'introduces'.

How do I differentiate between the two words, with the information given in the first para?

Thanks
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New post 15 Jun 2018, 11:06
Amirfunc wrote:
Hi urvashis09,

Could you help me choose between C and E , I find both the answers almost the same except the two words in the choices 'defines' and 'introduces'.

How do I differentiate between the two words, with the information given in the first para?

Thanks


Hi,


The difference is again not between the two words but between the two lines.

C)The first paragraph introduces an economic concept which is defined in the following paragraphs. Note that the first paragraph clearly "defines" the concept of price elasticity and the subsequent paragraphs elaborate on the concept further. This is a classic half right half wrong answer choice in the sense we can definitely say that the first para introduces an economic concept but the following paragraph do not define the concept in fact they elaborate on it.

E)The first paragraph defines an economic concept upon which the following paragraphs expand. This matches the structure perfectly. The first paragraph defines a concept and the next paragraphs further discuss the various factors that effect it.
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New post 15 Jun 2018, 18:32
Hi urvashis09,

Thanks for the explanation.

Cheers
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New post 17 Jun 2018, 22:58
Need explanation for question 3 . Thanks in advance.
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New post 17 Jun 2018, 23:50
Answer for 4 questions are as below
1-E
2-C
3-E
4-C
If any thing wrong please reply

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New post 24 Jul 2018, 09:03
What is the difference in C and E in question 1. Can someone explain please.
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New post 24 Jul 2018, 09:57
madhukaramar wrote:
What is the difference in C and E in question 1. Can someone explain please.


1)What is the function of the first paragraph?


C)The first paragraph introduces an economic concept which is defined in the following paragraphs.
Definition is only given in para1 as stated in option E
E)The first paragraph defines an economic concept upon which the following paragraphs expand.

Every single word is important in eliminating options in RC.
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New post 24 Jul 2018, 10:09
sandman13 wrote:
Can someone elaborate why OA of q1 is E? I guess I basically want to determine what constitutes defining vs discussed.


Defining is the general definition while discussion is where the author elaborates on that definition (in this context) or a phenomenon by presenting his/her own understanding. A discussion is likely to consist of the positives and negatives of the topic in hand.
E is correct because only the para1 consists of definition and rest of the passage elaborates/ discusses that same topic.

Hope that makes sense.
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New post 24 Jul 2018, 11:42
Why the answer to Q2 Is C and not D?
In C isn’t it other way around, that the duration of price changes affects elasticity and not vice-versa as is stated in option C?
But as in option D, it describes another factor that affects elasticity (defined in 1st paragraph)


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New post 24 Jul 2018, 12:19
The questions were sometimes a little tricky, but this was the first text I read so far which I was fully interested in.
Crossing fingers for texts with economic topics on the actual test
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New post 26 Jul 2018, 21:22
1
Official Explanation from Economist Gmat:
1. Answer E.
For this Structure question, we do not need to go beyond our Initial Reading:
Paragraph I: Price elasticity of demand (PED) is defined as how much demand for a product changes as its price changes
Paragraph II: The number of substitutions available for a product affects PED
Paragraph III: The breadth of definition of a product affects PED
Paragraph IV: The duration of the price change affects PED
Paragraph V: The product's necessity to the customer affects PED

The first paragraph defines the concept of price elasticity of demand, and the rest of the passage shows several factors which influence the degree of elasticity.

2. Answer D.
For this Structure question, we do not need to go beyond our Initial Reading:
The fourth paragraph introduces the concept of duration of price change, which has an effect on the elasticity of demand for a product.

3. Answer C.
This is an Inference question. We should begin by reading about sports cars, which are mentioned in the last sentence of the third paragraph. From the information in the question, we can infer that the demand for such cars is inelastic because they are a symbol of luxury and prestige.
Because prestige and luxury are the reasons for the inelasticity of demand for sports cars, we can infer that if sports cars were not so well-regarded, demand for them would become more elastic.

4. Answer C.
For this Main Idea question, we do not need to go beyond our Initial Reading:
The first paragraph introduces price elasticity of demand and the rest of the paragraphs describe factors which affect it.
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New post 28 Nov 2018, 07:40
Got 4/4 correct in 9:12 min including 5 min to read the passage.
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New post 03 Jan 2019, 00:47
Hey dabaobao,

5 minutes to read the passage is a little too much to read the passage.

Identifying what is important and what is not would help you bring that time to under half of what you have taken.

To understand that, please watch the video below.

https://www.youtube.com/watch?v=43X5yJI ... c_0aAFpICK

All the best :)

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New post 17 Feb 2019, 09:31
1
HI SajjadAhmad
Please add the following question

The author's discussion of luxury items in Medieval Europe is meant to
A. comment on the state of Medieval European society
B. show that a product can still be considered necessary even if it is not a physical necessity of life
C. prove that the rules of elasticity of demand were the same in the past as they are in the present
D. argue that, to Medieval European royalty and nobles, luxury items were of the same value as bread, water or medication
E. provide an example of how the demand for needed items is always very elastic



thanks
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Re: Although basic economic models postulate that the demand for a  [#permalink]

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New post 17 Feb 2019, 12:35
Hi, I do not understand why in Question 5 the right answer is B instead of D.

Could someone provide the official explanation?
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Re: Although basic economic models postulate that the demand for a   [#permalink] 17 Feb 2019, 12:35
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