Unit 3 homework
1) Suppose
that 50 units of a good are demanded at a price of $1 per unit. A reduction in price to $0.20 results in an
increase in quantity demanded to 70 units.
Show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in
the price reduce the quantity demanded, assuming price elasticity remains
constant along the demand curve?
2) Fill
in the blanks for each price quantity combination listed in the following
table. Now graph this relationship,
making sure to label each axis. What
relationship have you depicted?
|
P |
Q |
Price Elasticity |
Total Revenue |
|
$9 |
1 |
9.1 |
9 |
|
$8 |
2 |
5.6 |
16 |
|
$7 |
3 |
3.0 |
21 |
|
$6 |
4 |
1.9 |
24 |
|
$5 |
5 |
1.2 |
25 |
|
$4 |
6 |
.82 |
24 |
|
$3 |
7 |
.52 |
21 |
|
$2 |
8 |
.33 |
16 |
3) For
each of the following absolute values of price elasticity of demand, indicate
whether demand is elastic, inelastic, perfectly elastic, perfectly inelastic,
or unit elastic. In addition, determine
what would happen to total revenue if a firm raised its price in each
elasticity range identified.
4) Why
is the price of elasticity of demand for Coca-Cola greater than the price
elasticity of demand for soft drinks generally?
5) Would
the price elasticity of demand for electricity be more elastic over a shorter
or longer period of time?
6) Rank
to following in order of increasing (from negative to positive) cross-price
elasticity of demand with coffee.
Explain you answer.
Bleach___ Tea Cream_____ Cola____
7) Calculate
the income elasticity of demand for each of the following goods:
|
Quantity Demanded When Income is $10,000 |
Quantity Demand When Income is $20,000 |
|
|
Good |
10 |
25 |
|
Good |
4 |
5 |
|
Good |
3 |
2 |
8) Complete each of the following
sentences:
a. The income elasticity of
demand measures, for a given price, the ____________________
in quantity demanded divided by the ______________________
income from which resulted.
b. If a decrease in the
price of one good causes a decrease in demand for another good, the two goods
are ___________________.
c. If
the value of the cross-price elasticity of demand between two goods is
approximately zero, they are considered __________________.
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