ECON 2302 Elasticity Homework 2

The town of Bloomfield is well known for its basketball team. The price of basketball games tickets is determined by market forces. Table 6-2 below shows the demand and supply schedules for basketball games tickets. Use Table 6-2 to answer the following question(s).

0

If 100 units of a good are produced when the price is $10, and 150 units are produced when the price is $15, then what is the elasticity of supply? Use the midpoint formula, and enter your answer to two decimal points.

1 (0.98 - 1.02)

Using the midpoint formula, calculate the price elasticity of portable air conditioners if an increase in price from $300 to $360 leads to an increase in the quantity supplied from 10,000 to 14,000.

1.83

How is the responsiveness of the quantity demanded to a change in price measured?

By dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.

How do economists avoid confusion over units in the computation of elasticity?

By using percentage changes rather than simple differences.

Refer to Figure 6-2. As price falls from PA to PB, which demand curve is most elastic?

D1

Which good has the least elastic demand?

Gasoline in the short run.

Use Figure 6-6 to answer the following question(s). Refer to Figure 6-6. The supply of dorm rooms on Sam's campus this school year is best represented by which diagram?

Graph B

Refer to the figure below. In which case do we expect a smaller increase in the quantity of spaces supplied in response to a given increase in demand?

In the graph on the left side.

The price elasticity for a particular brand of raisin bran is, in absolute value:

Larger than the elasticity for all breakfast cereals together.

Which of the following is true if demand is inelastic?

The price elasticity of demand will be less than 1 in absolute value.

When is demand price elastic?

When the percentage change in quantity demanded is greater than the percentage change in price.

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. What will happen to Bullmoose Brewery's total revenue in response to this price increase?

decrease

Suppose the supply of bicycles is price elastic. This means that suppliers

respond significantly to changes in the price of bicycles.

Jerrell's demand for pizza is price elastic. This means that Jerrell

responds significantly to changes in the price of pizza.

Which of the following is a true statement?

- The more time that passes, the more elastic the demand for a product becomes. - The more substitutes available for a product, the greater the price elasticity of demand. - The demand curve for a luxury is more elastic than the demand curve for a necessity. All of the above.

Ali's Gyros operates near a college campus. Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut. He estimates that he would be able to sell 200 gyros per day at $3.50 each. What is Ali's elasticity of demand? Use the midpoint formula, make your answer a positive number, and enter your answer to two decimal points.

2 (1.98 - 2.02)

Refer to Figure 6-3. The graph shows the market for Mallika's beaded purses. Following a decrease in the price of beads, Mallika was able to lower her price to $16 and increase her quantity sold to 200. Using the midpoint formula, calculate the price elasticity of demand for Mallika's beaded purses in absolute value.

2.43

Suppose that when the price per case of Bullmoose beer rises from $14 to $16, the quantity demanded falls from 300 to 200 cases per week. Using the midpoint formula, calculate the price elasticity of demand (in absolute value) over this range?

3

What is the impact of a cut in price when demand is inelastic?

A decrease in total revenue.

What is the impact of a given shift in demand when supply is relatively more elastic?

A smaller increase in price.

Refer to the figure below. In which of the graphs does a price decrease lead to an increase in total revenue?

In the graph on the right.

Which of the following goods is likely to have the most elastic demand?

Restaurant Meals.

Which good has the most elastic demand?

Shell gasoline in the long run.

Which of the following statements about total revenue is correct?

The effect of price changes on total revenue depends on the price elasticity of demand.

When an increase in the quantity demanded is not large enough to make up for a decrease in price, total revenue falls. Which graph is more applicable to this statement?

The graph on the left.

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?

Zero

If a supply curve is highly elastic, then a small increase in price generates ____________________:

a proportionally larger increase in quantity supplied.

In the video lecture, I said that elasticity can be thought of as which of the following?

a ratio

Refer to Figure 6-4 Between points a and b on the demand curve, demand is

unit elastic.

A price elasticity of demand equals to zero indicates that the demand curve for the product is

vertical.

In the lecture video, which good did I say had demand that was almost perfectly inelastic?

The demand for birth attendants, such as obstetricians or midwives.