Question

Describe the various factors affecting demand and also draw the demand curve if it is perfectly inelastic and the demand for cardiac bypass surgery, given that the government pays the full cost for any patient.

Answer 1

Demand is defined as the amount of goods or services a person wishes to buy at the prevailing market price in the economy. The factors affecting demand are:

• Price of the good or service
• Price of complementary and substitute goods
• Tastes and preferences of the consumer
• Income of the consumer

Elasticity of demand is the responsive change in demand due to change in price of goods or services. A perfectly inelastic demand is when there is no change in demand due to change in price.

When the government pays full cost for cardiac bypass surgery of a patient, then any change in the price of surgery does not impact the demand, that is, the demand is inelastic to changes in price. Therefore, the price elasticity of demand is inelastic.