Eco 201-201 Ch.5 mind tap problems

The following graph illustrates the weekly demand curve for motorized scooters in Moline. Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve. A (50, 150) B (60,125)

According to the midpoint method, the price elasticity of demand between points A and B is approximately 1 . Percentage Change in QuantityPercentage Change in Quantity = 100× (Q2−Q1/Q2+Q12)/2 = 100× (60−50/60+50)/2 =100×0.1818 = 18.18% Percentage Change in Price = 100× ($125−$150/$125+$150)/2 = 100×−0.1818 = −18.18% Price Elasticity of Demand = Percentage Change in Quantity / Percentage Change in Price= (18.18% / 18.18%) = 1 Since the price elasticity of demand is equal to 1, demand is unit elastic between these two points. Suppose the price of scooters is currently $125 per scooter, shown as point B on the initial graph. Because the demand between points A and B is (unit elastic) , a $25-per-scooter increase in price will lead to (no change) in total revenue per week. Total revenue is equal to price times quantity. When price increases by $25 per scooter, quantity demanded goes from 60 to 50 scooters per week, and total revenue remains at 7500. . In general, in order for a price increase to cause a decrease in total revenue, demand must be (elastic) Total revenue is equal to price times quantity. Because price and quantity move in opposite directions when you move along a demand curve, a price change will cause total revenue to move in the direction of whichever variable is overpowering.

The following graph shows two known points (X and Y) on a demand curve for oranges. Y (3,70) X (2,80)

According to the midpoint method, the price elasticity of demand for oranges between point X and point Y is approximately (0.33) , which suggests that the demand for oranges is (inelastic) between points X and Y. a 40% change in price leads to a 13.33% change in the quantity demanded. Since the percentage change in quantity demanded is less than the percentage change in price, the demand for oranges is inelastic between points X and Y. This corresponds to a price elasticity of demand that is less than 1.

3. Elastic, inelastic, and unit-elastic demand The following graph shows the demand for a good. Z (12,350) Y (30,175) X (42,125) W (84,50) True or False: The slope of the demand curve is not equal to the value of the price elasticity of demand.

Price between Y and Z = Elastic (86%/67%) = 1.28 Price between X and Y = Unit Elastic (33%/33%)= 1 Price between W and X = Inelastic (67%/86%)= .78 Because the price elasticity of demand measures the responsiveness of consumers to changes in price. get the percentages by 100x(Q2-Q1/Q2+Q1)(2)...NEGATIVE SIGNS DONT MATTER TRUE ... In this case, the steeper part of the demand curve is the elastic portion, and the flatter part of the demand curve is the inelastic portion. However, despite this coincidence with nonlinear demand curves, you can see from the previous table that it's important to remember that slope is still not the same as elasticity. In general, demand tends to be elastic at relatively high prices, inelastic at relatively low prices, and unit elastic at prices toward the middle of the demand curve, regardless of the linear or nonlinear construction of the demand curve.

A survey taken by residents from the imaginary town of Draw City tells economists that the following changes result from a 10% rise in income: -A 2% increase in the quantity of chips demanded •A 17% decrease in the quantity of hearts demanded •A 34% increase in the quantity of queens demanded Which of the following three goods is most likely to be classified as a luxury good ?

To compute the income elasticity of demand for each good, you can use the formula: (% change in quantity demanded / %change in income) * (income/quantity demanded) CHIPS: (2/10) * (income / quantity demanded) = 0.2 * (income / quantity demanded) HEARTS: (-17/10) * (income / quantity demanded) = -1.7 * (income / quantity demanded) QUEENS: (34/10) * (income / quantity demanded) = 3.4 * (income / quantity demanded) CHIPS - 0.2 (NORMAL) HEARTS- -1.7 (INFERIOR) QUEENS- 3.4 (NORMAL) QUEENS are classified as a luxury good

1. Determinants of the price elasticity of demand Consider the following list containing several price elasticity of demand determinants: •The availability of close substitutes •Whether a good is a luxury or necessity •How broadly the market is defined •The time horizon under consideration The price elasticity of demand of a good depends in part on its relative necessity in comparison to other goods. Assume the following goods all have approximately the same price. Which of the goods has the least elastic demand?

first part: A good in the presence of many close substitutes is predicted to have relatively (elastic) demand, since consumers can easily choose to purchase one of the close substitutes if the price of the good were to increase. Explanation: the price elasticity of demand measures the responsiveness of consumers to changes in price. For example, if consumers change their purchasing behavior very little in response to a drastic change in price, demand is said to be inelastic; but if consumers change their purchasing behavior a lot in response to a small change in price, demand is said to be elastic. Part 2: A liver for people on the transplant waiting list (any health item over expensive bought item) Alcohol= least white claw= Most hard seltzer = Inbetween Explain: The overall category of beverages has no close substitutes, so the demand for alcohol, in general, is very inelastic. However, the more specific the type of alcohol, the more close substitutes are available. If the price of hard seltzer rises, a consumer could purchase beer, but most people would not consider those very close substitutes. If the price of raspberry white claw rises, consumers could switch to miller lite. Part 3: All else equal, the demand for natural gas will tend to be (less) elastic in the short run than in the long run.