Economics; Micro
Chapter 5
5-1 (Calculating Price Elasticity of Demand) 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 theses data yield a price elasticity of 0.25. Bt what percentage would a 10 percent raise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?
5-2 (Price Elasticity and Total Revenue) Fill in the blanks for each price quantity combination list in the following table. Now graph this relationship, making sure the label each axis. What relationship have you depicted?
P Q Price Elasticity Total Revenue
$9 1 ______ _______
$8 2 ______ _______
$7 3 ______ _______
$6 4 ______ _______
$5 5 ______ _______
$4 6 ______ _______
$3 7 ______ _______
$2 8 ______ _______
5-3 (Categories of Price Elasticity of Demand) For each of the following absolute values of price elasticity of demand, indicate whether demand is elastic, inelastic, perfectly elastic, and perfectly inelastic, for unit elastic. In addition, determine what would happen to total revenue a firm raised its prices in each elasticity range identified
5-4 (Determinants of Price Elasticity) What is the price of elasticity of demand for Coca-cola greater than the price elasticity of demand for soft drinks generally?
5-5(Determinants of Price Elasticity) Would the price elasticity of demand for electricity be more elastic over a shorter or a longer period of time?
5-7 (Cross-Price Elasticity) Rank the following in order of increasing (form negative to positive) cross-price elasticity of demand with coffee. Explain our reasoning.
Bleach______ Tea______ Cream______ Cola_____
5-8 (Income Elasticity of Demand) Calculate the income elasticity of demand for each of the following goods:
Quantity Demanded Quantity Demanded
When Income When Income
Is $10,000 Is $20,000
Good 1 10 25
Good 2 4 5
Good 3 3 2
5-9 (Other Elasticity Measures) 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 it 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 tow goods is approximately zero, they are considered ______.
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