HW6: Homework - Ch. 6: Elasticity

Consider two markets: the market for motorcycles and the market for pancakes. The initial equilibrium for both markets is the same, the equilibrium price is $⁢3.50, and the equilibrium quantity is 41.0. When the price is $10.75, the quantity supplied of motorcycles is 61.0 and the quantity supplied of pancakes is 109.0. For simplicity of analysis, the demand for both goods is the same. Using the midpoint formula, calculate the elasticity of supply for pancakes. Please round to two decimal places. Supply in the market for motorcycles is

((109-41)/((109+41)/2)) / ((10.75-3.5)/((10.75+3.5)/2)) -> (68/70)/(7.25/7.125) = 0.89 less elastic than supply in the market for pancakes.

Last week, Michelle spent $30 on caviar. Today, Michelle still spends $30 on caviar even though its price has doubled. What is Michelle's price elasticity of demand for caviar? (Use the midpoint formula for your calculation.)

((15 - 30)/((30 + 15)/2)) * 100 = 66.7%, ((60 - 30)/((30 + 60)/2)) * 100 = 66.7%, 66.7/66.7 = 1

The accompanying diagram depicts a demand curve for DVDs for a monopoly currently producing at point 𝐵. Specify answers to the nearest dollar, and use a negative sign to indicate decreases in revenue. If the firm lowers DVD prices from $16 to $14, what is the change in revenue, assuming quantity remains the same? In other words, focus only on the price effect. $ ____________________ What is the change in revenue that results just from the increased quantity at $14? In other words, focus only on the quantity effect. $ ____________________ What is the overall net effect of this price decrease on the firm's total revenue? $ ____________________ What is the price elasticity of demand?

(14 * 200) - (16 * 200) -> 2800 - 3200 = -400 (14 * 300) - (14 * 200) -> 4200 - 2800 = 1400 (14 * 300) - (16 * 200) -> 4200 - 3200 = 1000 elastic

If the price of Product E decreasing by 9% causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase by 12%, what is the cross-price elasticity of demand? Round your answer to one decimal place. What is the relationship between these goods?

-1.3 complements

Blake eats two bags of generic potato chips each day. Blake's hourly wage increases from $⁢7 to $⁢15, and he decides to stop eating generic chips and instead eats a name-brand potato chip. Use the midpoint method to calculate Blake's income elasticity of demand for generic potato chips. Round your answer to two decimal places. ___________ units This good is

-2.75 an inferior good.

If a 25% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B, what is the cross-price elasticity of these goods? Round your answer to one decimal place. What is the relationship between these goods?

0 no relationship

Lauren's salary decreases from $44,000 to $30,000. She decides to reduce the number of outfits she purchases each year from 20 to 19. Use the midpoint method to calculate the income elasticity of demand for new outfits. Round your answer to two decimal places.

0.14 a normal good and income-inelastic.

For each scenario, calculate the cross-price elasticity between the two goods and identify how the goods are related. Please use the midpoint method when applicable, and specify answers to one decimal place. A 20% price increase for Product A causes a 10% decrease in its quantity demanded, but no change in the quantity demanded for Product B. cross-price elasticity between A and B: _______ relationship between A and B: Product C increases in price from $3 a pound to $4 a pound. This causes the quantity demanded for Product D to increase from 44 units to 85 units. cross-price elasticity between C and D: ______ relationship between C and D: When the price of Product E decreases 9%, this causes its quantity demanded to increase by 14% and the quantity demanded for Product F to increase 12%. cross-price elasticity between E and F: _______ relationship between E and F:

0; no relationship 2.2; substitutes -1.3; complements

Andrina always spends 20% of her income on running shoes. Assume that her income increases by some percentage while the price of running shoes remains constant (and that all running shoes cost the same). What is her income elasticity of demand for running shoes?

1 (Unit Elastic)

If Good C increases in price by 50% a pound, and this causes the quantity demanded for Good D to increase by 60%, what is the cross-price elasticity of the two goods? Round your answer to one decimal place. What is the relationship between the two goods?

1.2 substitutes

For each scenario, calculate the income elasticity of demand, determine whether the good is inferior or normal, and classify the good's income elasticity. When calculating the income elasticity of demand, use the midpoint formula. Round your answers to the nearest hundredth. Sylvia's annual salary increases from $102,750 to $109,500, and she decides to increase the number of vacations she takes per year from three to four. Calculate her income elasticity of demand for vacations. income elasticity vacations = Vacations are a As a good, vacations are Blake eats two bags of generic potato chips each day, and does not purchase any name-brand chips. Blake's hourly wage increases from $9 to $15, and he decides to eat one name-brand bag and one generic-brand bag each day. Calculate Blake's income elasticity of demand for generic potato chips. income elasticity generic chips=income elasticity generic chips=

4.49 normal good; income-elastic. -1.33 inferior good. neither income-elastic nor income-inelastic.

The graph depicts five demand curves. Please rank each curve in terms of elasticity. A curve that is more elastic than another curve for any given quantity can be considered more elastic.

Graph: Elastic -> Inelastic Horizontal -> Steeper -> Vertical C, E, B, D, A

Sylvia's annual salary increases from $100,500 to $109,500. Sylvia decides to increase the number of vacations she takes per year from three to four. Use the midpoint method to calculate her income elasticity of demand for vacations. Round your answer to two decimal places. ________________ units This good is

Income Elasticity = (Qnew d - Qold d/(Qnew d + Qold d/2))/(incomenew - incomeold/(incomenew + incomeold/2)) 3.33 a normal good and income-elastic.

In anticipation of a major hurricane hitting the Gulf Coast, the quantity of gasoline sales rise from 360 million gallons to 375 million gallons. Based on this information, what is the percent change in gasoline sales? Please specify your answer to one decimal place and use the midpoint formula. change: ________________ %

Price Elasticity of Demand = %△ in Qd/%△ in P -> ((375 - 360)/((360 + 375)/2)) * 100 = 4.1%

The Acmeville Metropolitan Bus Service currently charges $0.88 for an all-day ticket, and has an average of 588 riders a day. The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number of buses on the road. They must therefore find a way to increase revenues. The bus company is considering increasing the ticket price to $0.99. The marketing department's studies indicate this price increase would reduce usage to 337 riders per day. Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method. Round your answer to one decimal place. price elasticity of demand = _________________ Which of the statements is true?

Price elasticity of Demand = ((%∆QD / %∆P) * (Pi/Qdi) Price elasticity of Demand= (( 337 - 588 )/( 0.99- 0.88)) * ( 0.88 / 588 ) -> (-251 / 0.11) * ( 0.0015) -> -2,281.8181 * 0.0015 = -3.4 or 3.4 ( absolute value) Demand is elastic, so decreasing ticket prices will increase revenue.

The table shown lists two goods along with their cross-price elasticities, where the percentage change in quantity is measured for Good 1 and the percentage change in price is for Good 2. Identify the relationship between each of the pairs of goods. | Cross-price | Good 1 | Good 2 | elasticity | Relationship | | of demand | air-conditioning units | electricity | -0.38 | c 7-Up | Sprite | +0.67 | s coffee | creamer | -0.26 | c Burger King burgers | In-N-Out burgers | +0.86 | s mystery good A | mystery good B | 1.54 | s

Relationship complements substitutes complements substitutes substitutes

Determine whether each of the statements given is true or false.

True: A Swiffer floor sweeper and a broom would have a positive cross-price elasticity of demand. False: When supply is perfectly inelastic, a change in demand has no effect on the price. The short-term elasticity of supply is larger than the long-run elasticity of supply because changes in equilibrium will adjust elasticity accordingly. When the price increases, total revenue always increases because of the price effect. A key consideration as to whether the price elasticity of supply is elastic of inelastic is whether the good supplied in a luxury item.

Identify the scenarios as examples of elastic, inelastic, or unit elastic demand. a. When Ruko, a device used to stream movies at home, increases prices by 51 percent, total revenue decreases by 69 percent. b. When Cinema Supreme decreases ticket prices by 5 percent, total revenue does not change. c. When Bluebox, a streaming service for foreign television shows and movies, increases its prices by 52 percent, total revenue increases by 28 percent.

a. elastic b. unit elastic c. inelastic

Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand. a. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00. As a result, the quantity sold drops from 20,000 to 15,000. b. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5. c. Capital Metro decides to increase bus fare rates from $2.00 to $2.21. Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

a. unit elastic b. inelastic c. elastic

Over longer periods of time, demand tends to become When there are fewer substitutes, demand tends to be

more elastic. less elastic.

For each scenario select the term that best describes it. Use the midpoint method when applicable. Marcel Duchamp was a famous artist prior to his death, and was known for his Dada artwork, including works such as "Soft Toilet." All of his original sculptures and paintings go on sale. Supply is Paul owns a Tim Horton's, a famous donut and coffee franchise. He is willing to sell as many maple glazed donuts as customers want at a price of $1.00 each, but he refuses to sell any donuts for any price lower than $1.00. Supply is The price of facial tissues rises from $2.85 per box to $3.15. As a result, P&G increases production from 15 million boxes to 25 million boxes of facial tissue. Supply is With the school semester starting for both high school and college, Papermate chooses to increase production of pens from 38 million to 42 million after global prices of writing instruments increase from $1.90 a package to $2.10 a package. Supply is Bright Ideas increases its production of lightbulbs by 15% after a 400% increase in the price of fluorescent bulbs. Supply is

perfectly inelastic. perfectly elastic. elastic. unit-elastic. inelastic.