# Recitation #5 Week 02/08/2009 to 02/14/2009. Chapter 6 - Elasticity

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Recitation #5 Week 02/08/2009 to 02/14/2009 Chapter 6 - Elasticity 1. This problem explores the midpoint method of calculating percentages and why this method is the preferred method when calculating price elasticity of demand or price elasticity of supply. Consider the demand curve in the figure below to answer this question. a. Suppose the initial price and quantity on the above demand curve is represented by point A and then the price and quantity change to point B. Calculate the percentage change in price and the percentage change in quantity using the following formula: Note: we are purposefully not using the midpoint method for parts (a) through (e) of this problem so that we can compare these results to the results we would get if using the midpoint method. 1

2 b. Using the percentage changes you calculated in part (a), calculate the price elasticity of demand from point A to point B, using the following formula: c. Redo part (a) starting at point B and moving to point A. Use the same formula as that given in part (a). d. Calculate the price elasticity of demand from point B to point A using the formula given in part (b). e. Are your values for the price elasticity of demand the same in parts (a) and (d)? Now, let s recalculate the price elasticity of demand using the midpoint method. f. Suppose you are initially at point A and that you move to point B. Calculate the percentage change in price and the percentage change in quantity using the following (midpoint method) formula: 2

3 g. Using the percentage changes you calculated in part (f), calculate the elasticity of demand from point A to point B using the following formula: h. Suppose you now start at point B and move to point A. Calculate the percentage change in price and the percentage change in quantity using the formula given in part (f). i. Calculate the price elasticity of demand from point B to point A using the formula given in part (g). j. Are the values you calculated for the price elasticity of demand using the midpoint method the same in parts (g) and (i)? Summarize the significance of the midpoint method when calculating the price elasticity of demand or the price elasticity of supply. 3

4 2. Use the figure from problem 1 to answer this question. a. Calculate a value for the price elasticity of demand between points C and E using the midpoint method. Does it matter which point you select as your initial point? b. Compare the value you calculated in part (a) of this problem with the price elasticity of demand value between points A and B that you calculated in part (g) of problem. Are these two price elasticities of demand the same? c. Demand is elastic when the absolute value of the percentage change in the quantity demanded exceeds the absolute value of the percentage change in the price. Given the values you compared in part (b), is demand elastic between points A and B or between points C and E? d. Demand is inelastic when the absolute value of the percentage change in the quantity demanded is less than the absolute value of the percentage change in the price. Given the values you compared in part (b), is demand inelastic between points A and B or between points C and E? 4

5 3. Use the figure below of a linear demand curve to answer this set of questions. a. Based on the above figure, fill in the following table: b. At what price is total revenue maximized? (Hint: this may be a price that is not included in your table.) 5

6 c. Suppose the price is initially \$6, but it then decreases to \$5. Calculate the elasticity of demand between these two points on the demand curve using the midpoint method. d. Based on your calculations in part (c), describe the relationship between the absolute value of the percentage change in the quantity demanded and the absolute value of the percentage change in price when moving from a price of \$6 to a price of \$5. 8. When Mario s income increases by 10%, his consumption of noodles decreases from 100 units a year to 70 units a year, while his consumption of salmon increases from 20 units a year to 60 units a year. a. What is Mario s income elasticity of demand for noodles? Price Quantity demanded by children Quantity demanded by adults \$ b. What is Mario s income elasticity of demand for salmon? c. Is either of these goods income elastic for Mario? 6

7 d. Is either of these goods income inelastic for Mario? e. From Mario s perspective, is either of these goods a luxury good? Explain your answer. f. From Mario s perspective, is either of these goods an inferior good? Explain your answer. 10. The following table describes a linear supply curve for bicycles in Microland. a. Graph this supply curve and then write an equation for this supply curve in slope intercept form. 7

8 b. Suppose suppliers initially sell bicycles for \$200 but then decrease their price to \$100. Using the midpoint method, what is the value of the price elasticity of supply between these two points on the supply curve? c. Suppose suppliers initially sell bicycles for \$400 and then the price increases to \$500. Using the midpoint method, what is the value of the price elasticity of supply between these two points on the supply curve? d. Did your values in part (b) and part (c) of this question differ or were they the same? You might redo this problem with another set of values for a different linear demand curve that goes through the origin. Do you get the same result? Generalize your findings in a simple statement. 8

9 Chapter Review Questions 1. When the absolute value of the percentage change in quantity demanded is greater than the absolute value of the percentage change in price, demand is a. inelastic. b. elastic. 2. If the price is initially \$10 and then increases to \$15, the absolute value of the percentage change in price using the midpoint method is a. 50%. b. 40%. c. 5%. d. 4%. 3. The midpoint method for calculating price elasticities provides a means of a. ensuring that all price elasticities have positive values. b. ensuring that all price elasticities have negative values. c. generating consistent measures of price elasticities between two points on a demand or supply curve without regard to which point is the initial point. d. simplifying the calculation of price elasticities so that all elasticity values are whole numbers. 4. A horizontal demand curve is perfectly a. elastic. b. inelastic. 9

10 5. If the price elasticity of demand between two points on a demand curve is equal to 1.5, then demand between those two points is a. price elastic. b. price inelastic. 6. If the price elasticity of demand equals infinity, then the demand curve is a. horizontal. b. vertical. 7. A small value (less than one) for the price elasticity of demand indicates that consumers are very price a. sensitive and that a small percentage change in price will lead to a large percentage change in the quantity demanded when both changes are measured in absolute value terms. b. insensitive and that a small percentage change in price will lead to an even smaller percentage change in the quantity demanded when both changes are measured in absolute value terms. Use the diagram below of a linear demand curve to answer the next three questions. 8. Suppose price is initially \$60. If price increases to \$70, this will cause the quantity demanded to decrease while a. total revenue increases. b. total revenue decreases. 10

11 c. total revenue does not change. d. the effect on total revenue depends on consumers reactions to the price increase. 9. Suppose you are a producer and the demand curve in the graph represents the demand for your product. Furthermore, suppose you are currently selling this product at a price of \$30. If you raise the price to \$40 and demand remains unchanged, total revenue will because the price effect is than the quantity effect. a. increase; larger b. increase; smaller c. decrease; larger d. decrease; smaller 10. Suppose you are a producer and the demand curve in the graph represents the demand for your product. To maximize total revenue you should sell the good for, resulting in total revenue of. a. \$100; \$100,000 b. \$60; \$2,400 c. \$40; \$2,400 d. \$50; \$2,500 11

12 Use the figure below to answer the next two questions, where point A is the midpoint of the depicted linear demand curve. 11. At prices greater than P1 demand is, while at prices less than P1 demand is, and at price P1 demand is. a. elastic; elastic; unit elastic b. inelastic; inelastic; unit elastic c. elastic; inelastic; unit elastic d. inelastic; elastic; unit elastic 12. Suppose price is initially at P1. Which of the following statements is true? a. If price rises to P2, then the quantity effect will dominate over the price effect and total revenue will increase. b. If price falls to P3, then the quantity effect will dominate over the price effect and total revenue will increase. c. If price rises to P2, then the price effect will dominate over the quantity effect and total revenue will increase. d. If price falls to P3, then the price effect will dominate over the quantity effect and total revenue will decrease. 12

13 13. Which of the following statements is true? a. The longer the time period of adjustment to a change in the price of the good, the more elastic the demand for that good. b. Goods that have many close substitutes typically have price elastic demand. c. The demand for nonessential goods is more elastic than the demand for goods that are necessities. d. All of the above statements are true. 14. Tea and coffee are often viewed as substitutes for one another. Which of the following cross-price elasticity values is most likely for tea and coffee? a. 0.5 b The price of movie tickets increased 10% this year. Which of the following statements is most likely to be true? a. The quantity of popcorn sold at movie theaters decreased this year. b. Video movie rentals increased this year. c. If the price elasticity of demand for movie tickets is greater than one, total revenue at the movie theaters decreased. d. All of the above statements are true. 16. The cross-price elasticity of demand between movie tickets and movie theater popcorn is estimated to equal 0.6. Suppose movie ticket prices increased by 20% this year. The percentage change in the quantity demanded of movie theater popcorn will be a(n) a. increase of 1.2% b. increase of 12%. 13

14 c. decrease of 1.2%. d. decrease of 12%. 17. This year Joe s income increased by 15% while the quantity of bananas he demanded increased by 8% and the quantity of orange juice he demanded increased by 6%. Which of the following statements is true for Joe? a. Bananas are a normal good and orange juice is an inferior good. b. Bananas are an inferior good and orange juice is a normal good. c. Bananas and orange juice are both normal goods. d. Bananas and orange juice are both inferior goods. 18. Use the data in the table below to answer this question. The table provides information about prices, quantity demanded, and income for Sue for two different years. Calculate Sue s income elasticity of demand for pizza for this time period. Sue s income elasticity of demand for pizza equals and pizza is a(n) good. a. 1; normal b. 1; inferior c. 1.65; inferior d. 1.65; normal 14

15 19. Use the information in the table below to answer this question. Calculate the cross-price elasticity of demand between the quantity demanded of pizza and the price of books. What is the relationship between pizza and books given this cross price elasticity of demand value? a. Pizza and books are complements. b. Pizza and books are substitutes. c. Pizza is an inferior good and books are a normal good. d. Pizza is a normal good and books are an inferior good. 20. Suppose the income elasticity of demand for a good is greater than one. Which of the following statements is true? a. The percentage change in the quantity demanded of this good is larger than the percentage change in income. b. This good is a necessity, since as income increases the quantity demanded of the good increases. c. This good is an inferior good, since as income increases the quantity demanded of the good increases at a much greater rate than the rate of increase in income. d. This good could not be a luxury good, since income and the quantity demanded have a positive relationship. 21. Suppose there is an influx of new workers in a community. This will likely result in a. an increase in the price elasticity of demand for all normal goods. b. an increase in the price elasticity of supply for goods produced in this community. c. a decrease in the price elasticity of demand for most goods. d. little change in any elasticity measure for this community. 15

16 22. Acme Manufacturing produces 1,000 widgets when the price of widgets is \$20 per widget, and 1,200 widgets when the price of widgets is \$22 per widget. Using the midpoint method, what is the value of the price elasticity of supply? a. 1.9 c. 0.5 b. 0.6 d Acme Manufacturing originally was able to produce 1,000 widgets at a price of \$20 per widget, and 1,200 widgets at a price of \$22 per widget. Suppose that there is an influx of new workers into the community and Acme now finds it can produce 1,200 widgets at a price of \$20 per widget, and 1,600 widgets at a price of \$22 per widget. Which statement best describes Acme s situation? a. Acme s supply curve is now more price-inelastic which implies that as the price increases Acme can now supply a greater quantity of the good than it could initially. b. Acme s supply curve is unaffected by this change in labor: a price increase for widgets simply causes a movement along the supply curve for widgets. c. Acme s supply curve is now more price-elastic which implies that as the price increases Acme can now supply a greater quantity of the good than it could initially. d. The availability of labor has an unpredictable effect on Acme Manufacturing. 16

17 Answers to Chapter Review Questions 1. Answer b. Demand is price elastic when the absolute value of the percentage change in the quantity demanded is greater than the absolute value of the percentage change in price. 2. Answer b. To find this value, you take the absolute value of the following: This gives you the absolute value of the percentage change in price, which is equal to 40%. 3. Answer c. Price elasticities may have negative values or positive values. For example, for both cross-price elasticity of demand and income elasticity of demand, the values may be positive, negative, or equal to zero. The midpoint method for calculating price elasticities provides a method for getting identical values no matter which point is your initial point when making the calculation. Price elasticities are not always whole numbers. 4. Answer a. This is definitional: it is an extreme case of elasticity in which demanders are extremely price sensitive. 5. Answer a. Since the value of price elasticity of demand is greater than one, this implies that the absolute value of the percentage change in the quantity demanded is greater than the absolute value of the percentage change in price, which means that demand is elastic between these two points. 6. Answer a. This is definitional: when the demand curve is horizontal, it tells us that consumers are very price sensitive, and at the current price there is infinite demand for the good. When the demand curve is perfectly vertical, it tells us that consumers are not price sensitive, since no matter what the price they will continue to demand the same amount of the good. 7. Answer b. When the price elasticity of demand has a value less than one, this implies that the absolute value of the percentage change in the quantity demanded is less than the absolute value of the percentage change in the price of the good. Consumers are not price sensitive: they will continue to demand a similar amount of the good even though the price has increased. 8. Answer b. When price rises from \$60 to \$70, total revenue changes from \$2,400 to \$2,100. The price of \$60 is above the midpoint on the given demand curve, so an increase in price above \$60 implies that price is increasing in the elastic region of the demand curve. As price rises in the elastic portion of the demand curve, this results in a decrease in total revenue. 17

19 18. Answer b. To find the income elasticity of demand, recall that this is the ratio of the percentage change in the quantity demanded of the good divided by the percentage change in income. The percentage change in the quantity demanded of pizza is 25% (using the simple formula for percentage changes given in the Chapter Objectives section of the Study Guide), while the percentage change in income is also 25%. Thus, the income elasticity of demand is equal to 1. Pizza is an inferior good, since as income increases, the quantity demanded decreases. 19. Answer b. As the price of books decreases we see from the table that the quantity of pizzas demanded decreases. This tells us that these two goods are substitutes for one another since as the price of one of the goods decreases this leads consumers to substitute away from the other good and decrease the quantity they demand of the other good at every price. 20. Answer a. When income elasticity of demand is greater than one, this tells us that the good is not an inferior good, since as income increases this leads to an increase in the quantity demanded of the good. From the definition of income elasticity of demand, a value greater than one implies that the percentage change in the quantity demanded of the good is greater than the percentage change in income. When the income elasticity of demand is greater than one, this implies that the good is a luxury, since the percentage increase in the quantity demanded is increasing at a faster rate than the percentage increase in income. 21. Answer b. When there is an influx of new workers into a community, labor becomes more plentiful. Since labor is an input in the production of goods, this likely makes the supply of goods more elastic. 22. Answer a. To find the price elasticity of supply, use the midpoint method and calculate the percentage change in the quantity supplied divided by the percentage change in the price of the good. Thus, the price elasticity of supply equals 23. Answer c. If you sketch out the relationships between price and the quantity supplied, you will notice that the influx of workers results in Acme Manufacturing supply s curve shifting out to the right. This causes the price elasticity of supply to increase, resulting in more priceelastic supply. Calculation of the new value of the price elasticity of supply would be equal to Supply is now more price elastic. 19

### ELASTICITY AND ITS APPLICATION

5 ELASTICITY AND ITS APPLICATION CHAPTER OUTLINE: I. The Elasticity of Demand A. Definition of elasticity: a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants.

### Name: Date: 2. When the price goes down, the quantity demanded goes up. This price elasticity measures how:

Name: Date: 1. The price elasticity of demand measures the responsiveness of the change in the: A) quantity demanded to a change in the price. B) price to a change in the quantity demanded. C) slope of

### PROBLEM SET#3 PART I: MULTIPLE CHOICE

1 PROBLEM SET#3 PART I: MULTIPLE CHOICE 1. In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.

### Sample Exam Questions/Chapter 6. Use the following to answer question 1: Figure: The Demand for e-books

Sample Exam Questions/Chapter 6 Use the following to answer question 1: Figure: The Demand for e-books 1. (Figure: The Demand for e-books) Look at the figure The Demand for e-books. What is the price elasticity

### Chapter 4: Elasticity. McTaggart, Findlay, Parkin: Microeconomics 2007 Pearson Education Australia

Chapter 4: Elasticity Objectives After studying this chapter, you will be able to: Define, calculate, and explain the factors that influence the price elasticity of demand Define, calculate, and explain

### 1. If the price elasticity of demand for a good is.75, the demand for the good can be described as: A) normal. B) elastic. C) inferior. D) inelastic.

Chapter 20: Demand and Supply: Elasticities and Applications Extra Multiple Choice Questions for Review 1. If the price elasticity of demand for a good is.75, the demand for the good can be described as:

### Elasticity: The Responsiveness of Demand and Supply

Chapter 6 Elasticity: The Responsiveness of Demand and Supply Chapter Outline 61 LEARNING OBJECTIVE 61 The Price Elasticity of Demand and Its Measurement Learning Objective 1 Define the price elasticity

### Exam: Principles Micro ECO 2023.U07 Fall 2009 Name

Exam: Principles Micro ECO 2023.U07 Fall 2009 Name Panther ID Instructions: 1. Please write in your name and Panther ID on the question paper. 2. Please Bubble in your name and Panther ID on the Scantron

### Chapter 6. Elasticity: The Responsiveness of Demand and Supply

Chapter 6. Elasticity: The Responsiveness of Demand and Supply Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 202 504 Principles of Microeconomics Elasticity Demand curve:

### Chapter 5 Elasticity of Demand and Supply. These slides supplement the textbook, but should not replace reading the textbook

Chapter 5 Elasticity of Demand and Supply These slides supplement the textbook, but should not replace reading the textbook 1 What is total revenue? Price multiplied by the quantity sold at that price

### AP MICRO Week 4 Practice Quiz: M, 20

1 1. A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about

### 2007 Thomson South-Western

Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

### Elasticity of Demand and Supply

Elasticity of Demand and Supply Price Elasticity of Demand (Ep) Calculating Percentage Change Significance of Price Elasticity of Demand (Ep) Determinants of Price Elasticity of Demand (Ep) For Next Time

### http://ezto.mhecloud.mcgraw-hill.com/hm.tpx

Page 1 of 17 1. Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from \$12 to \$16, the number of Frisbees demanded will Decrease

### 2011 Pearson Education. Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities

2011 Pearson Education Elasticities of Demand and Supply: Today add elasticity and slope, cross elasticities What Determines Elasticity? Influences on the price elasticity of demand fall into two categories:

### ECON 202: Principles of Microeconomics. Chapter 6 Elasticity: The Responsiveness of Demand and Supply

ECON 202: Principles of Microeconomics Chapter 6 Elasticity: The Responsiveness of Demand and Supply Elasticity: The Responsiveness of Demand and Supply 1. Price elasticity of demand. 2. Determinants of

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 4 - Elasticity - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The slope of a demand curve depends on A) the units used

### ECON Chapter 4 review quiz

1) The price elasticity of demand measures: ECON 1900-02 Chapter 4 review quiz a) the percentage change in quantity demanded as a result of a 1 percent change in supply b) the change in quantity demanded

### Chapter 5: Elasticity and Its Application

Ch. 5: Elasticity and Its Application Why are breakfast foods cheaper than tobacco products? Elasticity: is a numerical measure of the responsiveness of quantity demanded or quantity supplied to one of

### Elasticity and Its Application

Elasticity and Its Application Chapter 5 Elasticity... is a measure of how much buyers and sellers respond to changes in market conditions allows us to analyze supply and demand with greater precision.

### Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1

### THE ELASTICITY OF DEMAND

In this chapter, look for the answers to these questions: What is elasticity? What kinds of issues can elasticity help us understand? What is the price elasticity of demand? How is it related to the demand

### Elasticities of Demand and Supply

1 CHAPTER CHECKLIST Elasticities of Demand and Supply Chapter 5 1. Define, explain the factors that influence, and calculate the price elasticity of demand. 2. Define, explain the factors that influence,

### Measuring Elasticity of Demand

C H A P T E R E I G H T P r i c e e l a s t i c i t y o f d e m a n d Measuring Elasticity of Demand Demand curves can have many different shapes and so it is important to derive a way to convey their

### ELASTICITY Microeconomics in Context (Goodwin, et al.), 3 rd Edition

Chapter 4 ELASTICITY Microeconomics in Context (Goodwin, et al.), 3 rd Edition Chapter Overview This chapter continues dealing with the demand and supply curves we learned about in Chapter 3. You will

### Elasticity. I. What is Elasticity?

Elasticity I. What is Elasticity? The purpose of this section is to develop some general rules about elasticity, which may them be applied to the four different specific types of elasticity discussed in

### Midterm Exam #2. ECON 101, Section 2 summer 2004 Ying Gao. 1. Print your name and student ID number at the top of this cover sheet.

NAME: STUDENT ID: Midterm Exam #2 ECON 101, Section 2 summer 2004 Ying Gao Instructions Please read carefully! 1. Print your name and student ID number at the top of this cover sheet. 2. Check that your

### a. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price elastic

Things to know about elasticity. 1. Price elasticity of demand a. Meaning: The amount (as a percentage of total) that quantity demanded changes as price changes. b. Factors that make demand more price

### Elasticity and Its Application

Elasticity and Its Application Chapter 5 All rights reserved. Copyright 2001 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

### EC130 FOUNDATIONS OF ECONOMIC ANALYSIS

EC130 FOUNDATIONS OF ECONOMIC ANALYSIS 2004-2005 DEARTMENT OF ECONOMICS UNIVERSITY OF WARWICK Topic 2 Market equilibrium Stability revisited Elasticity Tax Tax incidence Tax incidence and elasticity 1

### CHAPTER 4 APPLICATIONS OF SUPPLY AND DEMAND

CHAPTER 4 APPLICATIONS OF SUPPLY AND DEMAND I. CHAPTER OVERVIEW There is a common expression among people who think about economic issues: It s all a matter of supply and demand. This expression is, for

### Pre-Test Chapter 18 ed17

Pre-Test Chapter 18 ed17 Multiple Choice Questions 1. (Consider This) Elastic demand is analogous to a and inelastic demand to a. A. normal wrench; socket wrench B. Ace bandage; firm rubber tie-down C.

### Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture - 10 Theory of Demand (Contd )

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture - 10 Theory of Demand (Contd ) In continuation to our last session on theory of demand

### Multiple Choice Questions for Self Study. (GZ der VWL / Introduction to Economics)

Multiple Choice Questions for Self Study (GZ der VWL / Introduction to Economics) ao. Prof. Dr. B. Yurtoglu) Economic Models 1) The purpose of making assumptions in economic model building is to (a) force

### ECO 2301 Spring 2014. EXAM 2 Form 1 Solutions

ECO 2301 Spring 2014 Sec 002 Klaus Becker EXAM 2 Form 1 Solutions 1. The equilibrium price and quantity of any good or service is established by: A. only demanders. B. government regulations. C. only suppliers.

### Practice Questions Week 3 Day 1

Practice Questions Week 3 Day 1 Figure 4-1 Quantity Demanded \$ 2 18 3 \$ 4 14 4 \$ 6 10 5 \$ 8 6 6 \$10 2 8 Price Per Pair Quantity Supplied 1. Figure 4-1 shows the supply and demand for socks. If a price

### 2 Price Elasticity of Demand

1 1.1 Goals of this class Goals of this class Expand on supply and demand: how much do quantities change in responses to: changes in price? changes in income? changes in price of related goods? Learn implications

### Price. Elasticity. Demand

+ Price Elasticity of Demand + n Elasticity = measure the responsiveness of one variable to changes in another variable. n Price elasticity of demand measures the responsiveness of demand to changes in

### Microeconomics Instructor Miller Elasticity Practice Problems

Microeconomics Instructor Miller Elasticity Practice Problems 1. Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price

### Elasticity and applications. Elasticity. Price elasticity of demand. Two demand curves 06.03.2012

Elasticity Elasticity and applications Law of demand: The demand curve is downward-sloping. As price rises quantity demanded falls, [as price falls quantity demanded rises]. Two markets: public transportation

### Problem Set- Chapter 2 Solutions

roblem Set- Chapter 2 Solutions 1. Ch 2, roblem 2.1 The demand for beer in Japan is given by the following equation: d 700 2 N + 0.1I, where is the price of beer, N is the price of nuts, and I is average

### Elasticity. Definition of the Price Elasticity of Demand: Formula for Elasticity: Types of Elasticity:

Elasticity efinition of the Elasticity of emand: The law of demand states that the quantity demanded of a good will vary inversely with the price of the good during a given time period, but it does not

### Basic idea. Chapter 3: Elasticity. but how much? I. Price Elasticity of Demand. % change in Qd. equation. Qs holding other factors constant

Chapter 3: Elasticity rice elasticity demand supply Cross elasticity Income elasticity Basic idea We know when d s holding other factors constant but how much? if price doubles how much does d fall? by

### MICROECONOMIC PRINCIPLES SPRING 2001 MIDTERM ONE -- Answers. February 16, 2001. Table One Labor Hours Needed to Make 1 Pounds Produced in 20 Hours

MICROECONOMIC PRINCIPLES SPRING 1 MIDTERM ONE -- Answers February 1, 1 Multiple Choice. ( points each) Circle the correct response and write one or two sentences to explain your choice. Use graphs as appropriate.

### Figure 4-1 Price Quantity Quantity Per Pair Demanded Supplied \$ 2 18 3 \$ 4 14 4 \$ 6 10 5 \$ 8 6 6 \$10 2 8

Econ 101 Summer 2005 In-class Assignment 2 & HW3 MULTIPLE CHOICE 1. A government-imposed price ceiling set below the market's equilibrium price for a good will produce an excess supply of the good. a.

### 10 : Theory of Demand

10 : Theory of Demand 1 Recap from last session Change in Demand Supply, Law of Supply Market Equilibrium Change in Equilibrium 2 A Shift in Both Supply and Demand Price of Ice-Cream Cone Large increase

### SUPPLY AND DEMAND : HOW MARKETS WORK

SUPPLY AND DEMAND : HOW MARKETS WORK Chapter 4 : The Market Forces of and and demand are the two words that economists use most often. and demand are the forces that make market economies work. Modern

### Chapter 4. Elasticity

Chapter 4 Elasticity -comparative static exercises in the supply and demand model give us the direction of changes in equilibrium prices and quantities -sometimes we want to know more we want to know about

### 4 THE MARKET FORCES OF SUPPLY AND DEMAND

4 THE MARKET FORCES OF SUPPLY AND DEMAND IN THIS CHAPTER YOU WILL Learn what a competitive market is Examine what determines the demand for a good in a competitive market Chapter Overview Examine what

### To do today: S & D in algebra and introduction to elasticities

To do today: S & D in algebra and introduction to elasticities The math of S and D (linear curves) What is elasticity? Concept and calculation Determinants of elasticity 2011 Pearson Education Market Equilibrium:

### Elasticity and Its Uses

CHAPTER 4 Elasticity and Its Uses CHAPTER OVERVIEW One of the most practical uses of economic analysis is to predict the effects of changes in underlying conditions or policies on the prices and production

### CASE FAIR OSTER 2012 Pearson Education, Inc. Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly Tefft

P R I N C I P L E S O F ECONOMICS T E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano & Shelly Tefft of 3 Elasticity 5 CHAPTER OUTLINE Price Elasticity of Demand Slope and Elasticity

### Answers to Text Questions and Problems

Answers to Text Questions and Problems Answers to Review Questions 1. The law of diminishing marginal utility says that the first units we consume of a good deliver the highest bang for the buck, and this

### Elasticity. Ratio of Percentage Changes. Elasticity and Its Application. Price Elasticity of Demand. Price Elasticity of Demand. Elasticity...

Elasticity and Its Application Chapter 5 All rights reserved. Copyright 21 by Harcourt, Inc. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department,

### NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The law of demand states that, other things remaining the same, the lower the price of a good,

### Price Elasticity of Demand Example Questions

Price Elasticity of Demand Example Questions Review: First, a quick review of Price Elasticity of Demand from lecture on 0/9/09. The definition, of Price Elasticity of Demand PED) is: Price Elasticity

### THIRD EDITION. ECONOMICS and. MICROECONOMICS Paul Krugman Robin Wells. Chapter 6. Elasticity

THIRD EDITION ECONOMICS and MICROECONOMICS Paul Krugman Robin Wells Chapter 6 Elasticity What is the definition of elasticity? What is the meaning and importance of: price elasticity of demand? WHAT YOU

### 5. The supply curve of a monopolist is A) upward sloping. B) nonexistent. C) perfectly inelastic. D) horizontal.

Chapter 12 monopoly 1. A monopoly firm is different from a competitive firm in that A) there are many substitutes for a monopolist's product but there are no substitutes for a competitive firm's product.

### 1 st Exam. 7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is

1 st Exam 1. Marginal utility measures: A) the total utility of all your consumption B) the total utility divided by the price of the good C) the increase in utility from consuming one additional unit

### An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.

1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.

### Unit 2 test prep. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Class: Date: Unit 2 test prep Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Rapidly increasing health costs have been a major political concern for several

### 1. The Price Elasticity of Demand

UNIVERSITY OF CALIFORNIA, LOS ANGELES Department of Economics Cameron Economics 1 Lecture 4 Last day, we pinned down what economists mean by competition in the context of markets. We then looked at demand

### Price Elasticity of Demand

04 Elasticity Price Elasticity of Demand Measures buyers responsiveness to price changes Elastic demand Sensitive to price changes Large change in quantity Inelastic demand Insensitive to price changes

### 1.2 Elasticity: Price elasticity of demand (PED)

1.2 Elasticity: Price elasticity of demand (PED) Learning Outcomes Explain the concept of price elasticity of demand, understanding that it involves responsiveness of quantity demanded to a, along a given

### Chapter 4: Elasticity. Monday, June 28 Tuesday, June 29

Chapter 4: Elasticity Monday, June 28 Tuesday, June 29 price PERFECTLY INELASTIC SUPPLY 100 90 80 70 60 50 40 30 10 0 0 10 30 40 50 60 70 80 90 100 quantity S=60 =160-2P Quantity supplied doesn t depend

### BUSINESS ECONOMICS CEC & 761

BUSINESS ECONOMICS CEC2 532-751 & 761 PRACTICE MICROECONOMICS MULTIPLE CHOICE QUESTIONS Warning: These questions have been posted to give you an opportunity to practice with the multiple choice format

### Managerial Economics

Managerial Economics Unit 1: Demand Theory Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2012/13 Winter-Ebmer, Managerial Economics: Unit 1 - Demand Theory 1 / 54 OBJECTIVES Explain the

### ECON 101 MIDTERM 1 REVIEW SESSION (WINTER 2015) BY BENJI HUANG

ECON 101 MIDTERM 1 REVIEW SESSION (WINTER 2015) BY BENJI HUANG TABLE OF CONTENT I. CHAPTER 1: WHAT IS ECONOMICS II. CHAPTER 2: THE ECONOMIC PROBLEM III. CHAPTER 3: DEMAND AND SUPPLY IV. CHAPTER 4: ELASTICITY

### Module 2 Lecture 5 Topics

Module 2 Lecture 5 Topics 2.13 Recap of Relevant Concepts 2.13.1 Social Welfare 2.13.2 Demand Curves 2.14 Elasticity of Demand 2.14.1 Perfectly Inelastic 2.14.2 Perfectly Elastic 2.15 Production & Cost

### University of Lethbridge - Department of Economics ECON 1010 - Introduction to Microeconomics Instructor: Michael G. Lanyi. Lab #4

University of Lethbridge - Department of Economics ECON 1010 - Introduction to Microeconomics Instructor: Michael G. Lanyi Lab #4 Chapter 4 Elasticity MULTIPLE CHOICE. Choose the one alternative that best

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition occurs in a market where there are A) a few firms producing goods which differ

### 4 ELASTICITY. Chapter. Price Elasticity of Demand. A) more elastic. B) less elastic. C) neither more nor less elastic. D) undefined.

Chapter 4 ELASTICITY Price Elasticity of Demand Topic: The Price Elasticity of Demand 1) The slope of a demand curve depends on A) the units used to measure price and the units used to measure quantity.

### C H A P T E R 4: The Price System, Demand and Supply, and Elas ticity. The Price System: Rationing and Allocating Resources

C H A P T E R 4 The Price System, Demand and Supply, and Elasticity Prepared by: Fernando Quijano and Yvonn Quijano Karl Case, Ray Fair The Price System: Rationing and Allocating Resources The market system,

### ELASTICITY AND ITS APPLICATION

5 ELASTICITY AND ITS APPLICATION WHAT S NEW IN THE FOURTH EDITION: There is a new In the News box that discusses the short-run and long-run price elasticity of demand for gasoline. LEARNING OBJECTIVES:

### TOPIC 4: ELASTICITY AND ITS APPLICATIONS

TOPIC 4: ELASTICITY AND ITS APPLICATIONS Dr Micheál Collins mlcollin@tcd.ie TOPIC 4: ELASTICITY AND ITS APPLICATIONS 1. Introduction 2. Price Elasticity of Demand Definition Categories Determinants Elasticity

### Exam 1. Corn (bushels)

ECONOMICS 10-008 Dr. John Stewart Feb. 13, 2001 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Please note that

### Econ 2113 Test 2A Pledge: I have neither given nor received aid on this exam.

Econ 2113 Test 2A Dr. Rupp Spring 2011 Name: Pledge: I have neither given nor received aid on this exam. Signature: Multiple Choice Identify the choice that best completes the statement or answers the

### CHAPTER 4 ELASTICITY

CHAPTER 4 ELASTICITY Chapter in a Nutshell When economists use the word elasticity, they mean sensitivity. Price elasticity of demand is a measure of buyers sensitivity to price changes. The elasticity

### 4 ELASTICITY. Chapter. Key Concepts

Chapter 4 ELASTICITY Key Concepts Price Elasticity of Demand The price elasticity of demand is a units-free measure of responsiveness of the quantity demanded of a good to a change in its price when all

### Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy

Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy 2900111 (Section 1) Chairat Aemkulwat Economics I: Microeconomics Spring 2015 Solution to Selected Questions: CHAPTER

### Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

### Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay. Lecture - 14 Elasticity of Supply

Managerial Economics Prof. Trupti Mishra S.J.M School of Management Indian Institute of Technology, Bombay Lecture - 14 Elasticity of Supply We will continue our discussion today, on few more concept of

### Elasticity. Demand is inelastic if it does not respond much to price changes, and elastic if demand changes a lot when the price changes.

Elasticity The price elasticity of demand measures the sensitivity of the quantity demanded to changes in the price. Demand is inelastic if it does not respond much to price changes, and elastic if demand

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Econ 201 Practice Test 1 Professor V. Tremblay MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Scarcity can best be defined as a situation in which:

### Instructor: Brian B. Young

Economics 212 Microeconomic Principles Exam No. 1 Date: 15 February 2012 Name The value of this exam is 100 points Instructor: Brian B. Young Please show your work where appropriate! Multiple Choice #1

### Chapter 4 Elasticities of demand and supply. The price elasticity of demand

Chapter 4 Elasticities of demand and supply The price elasticity of demand measures the sensitivity of the quantity demanded of a good to a change in its price It is defined as: % change in quantity demanded

### The Point-Slope Form

7. The Point-Slope Form 7. OBJECTIVES 1. Given a point and a slope, find the graph of a line. Given a point and the slope, find the equation of a line. Given two points, find the equation of a line y Slope

### d d Calculating Price Elasticity of Demand: The Midpoint or Arc Method

Microeconomics Topic 5: Discuss factors that determine demand and supply elasticity. Explain how demand and supply elasticity affect tax policy and the consequences of business decisions. Reference: Gregory

### The formula to measure the rice elastici coefficient is Percentage change in quantity demanded E= Percentage change in price

a CHAPTER 6: ELASTICITY, CONSUMER SURPLUS, AND PRODUCER SURPLUS Introduction Consumer responses to changes in prices, incomes, and prices of related products can be explained by the concept of elasticity.

### 8 POSSIBILITIES, PREFERENCES, AND CHOICES. Chapter. Consumption Possibilities

Chapter 8 POSSIBILITIES, PREFERENCES, AND CHOICES Consumption Possibilities 1) Budget lines are drawn on a diagram with the A) price of the good on the vertical axis and its quantity on the horizontal

### A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

### Chapter 4 Individual and Market Demand

Chapter 4 Individual and Market Demand Questions for Review 1. Explain the difference between each of the following terms: a. a price consumption curve and a demand curve The price consumption curve (PCC)

### PAGE 1. Econ 2113 - Test 2 Fall 2003 Dr. Rupp. Multiple Choice. 1. The price elasticity of demand measures

PAGE 1 Econ 2113 - Test 2 Fall 2003 Dr. Rupp Multiple Choice 1. The price elasticity of demand measures a. how responsive buyers are to a change in income. b. how responsive sellers are to a change in

### AP Microeconomics Chapter 4 Outline

I. Introduction A. Learning Objectives In this chapter students should learn: 1. What price elasticity of demand is and how it can be applied. 2. The usefulness of the total revenue test for price elasticity

### CHAPTER 5 WORKING WITH SUPPLY AND DEMAND Microeconomics in Context (Goodwin, et al.), 2 nd Edition

CHAPTER 5 WORKING WITH SUPPLY AND DEMAND Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Overview This chapter continues dealing with the demand and supply curves we learned about in