CH.5

Suppose that a demand curve exhibits 2 points. Initially, at price Po, the quantity demanded is Q0. when price changes to P1, Quantity demanded is Q1. Move the components of the midpoint formula for elasticity of demand to their correct positions. Price Elasticity of demand= | (blank/(blank/2)) / (blank)/(blank/2))

= (Q1-Q0 / (Q1+Q0/2) / (P1-P0/(P1+P0/2)

income elasticity of demand measures

How responsive quantity demanded is to changes in income

What does price elasticity of supply measure?

How responsive quantity supplied is to a change in price

At the beginning of this year, daily consumption of gasoline in the US amounted to 344 Million Gallons. Its estimated that for every 10% increase in the price of gasoline, quantity demanded falls by 2.1%. by the end of this year, the price of gasoline is expected to increase by 40 cents from $2.85 per gallon. Based on the info, what's expected quantity demanded for gasoline at the end of this year?

332.7 Million Gallons

Decide if the good is Normal or Inferior. 1. Billys mom increases his weekly allowance by %5. as a result billy increases the number of apps he downloads on his smartphone. Smartphone apps are 2. Susan gets a 15% performance bonus at work. she can finally stop eating so many frozen pizzas and eat something more tasty. frozen pizzas are

1. Normal Good 2. Inferior good

For the next part, suppose the income elasticity of demand for butter is 0.73

A normal Good

Total inefficiency caused by a tax is the sum of.. Governments that are interested in minimizing the efficency costs of taxation should only tax goods where

Administrative costs and deadweight loss Demand or supply, or both, are relatively inelastic

Quantity supplied is hyper sensitive to changes in price a shift in demand will elicit a large response in quantity supplied

Perfectly Elastic

Which statement is the best definition of the price elasticity of demand?

The ratio of the percent change in quantity demanded to the percent change in price

The wage elasticity of labor supply for men aged 18-25 is measured to be 0.3. within this group, the average weekly wage of the high school graduates is 2 thirds the amount of college graduates. assume that wage elasticity and all toher individual characteristics, like intelligence are the same across the education system. If male college graduates offer 49 hours of work per week, what would be the quantity supplied of labor for male high school graduates? nearest whole number

44 Hours a week

Calculate the income elasticity of demand, determine whether the good is inferior or normal, & classify the goods income elasticity. When calculating the income elasticity of demand, use the midpoint formula. Round to nearest hundredth. Sylvias annual salary increases from $102,750 to $109,500, and she decides to increase the number of vacations she takes per year from 3 to 4. calculate her income elasticity of demand for vacations.

Income Elasticity vacations= 4.49 Vacations are: NORMAL Good As a Good, Vacations are: Income-elastic

Blake eats 2 bags of generic potato chips each day, and doesn't purchase any name brand chips. Blake's hourly wage income elasticity of demand for generic potato chips.

Income Elasticity: -1.33 Inferior Good Income-Elastic

The graph shows the linear daily demand curve for poblano burritos in Collegeville. Use the graph to answer the questions. round the final answers to at least 2 decimal places. 1. calculate the slope between Points A & B. 2. calculate the slope between points C & D 3. Calculate the price elasticity of demand between points A & B using the midpoint method. 4. Calculate the price elasticity of demand between points C & D using the midpoint method 5. Which Statement about slope and price elasticity of demand along a linear demand curve is true?

1. -0.01 2. -0.01 3. 5.67 4. 0.176 5. Slope is constant Solution: Slope Calculation: Slope=P/Q= P2-P1 / P2-P1 Calculation for #3: when price is higher, demand is more elastic eD= | Q1-Q2/(Q1+Q2)/2 / (P1-P2)/(P1+P2)/2 price of elasticity of demand will always yield a negative value. but the elasticity determination is based on the absolute value of the price elasticity of demand. eD= (100-200)/(100+200)/2 / (9-8)/(9+8)/2 = (-100/150) / (1/8.5) = -0.6667/0.1176 =5.67

Label each scenario with the term that best describes it. use the midpoint method when applicable. 1. Marcel Duchamp was a famous artist prior to his death, & was known for his dada artwork, such as "soft toilet". all of his original sculptures and paintings go on sale. 2. Paul owns a tim hortons, famous donut & coffee franchise. He is willing to sell as many maple glazed donuts as customers want a price of $1.00 each, but he refuses to sell any donuts lower than $1.00 3. The price of facial tissues rises from $2.85 per box to $3.15. As a result, P&G increases production from 15 mil boxes to 25 mil boxes of facial tissue.

1. Perfectly Inelastic Supply 2.Perfectly Elastic Supply 3. Elastic Supply Solution: Price Elasticity Equation: Price elasticity of supply= %change in quantity supplied/ % change in price Given 2 points on the supply curve representing price and quantity combinations, use the midpoint formula for price elasticity of supply PEOS= ( Q1-Q2)/(Q1+Q2/2) / (P1-P2)/(P1+P2/2) Less than 1= Inelastic Greater than 1= elastic Equal to 1= Unit Elastic 3. PEOS= (25-15)/(25+15/2)/(3.15-2.85)/(3.15+2.85/2) = (10/20)/(0.30/3) = 5

Label Demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand. 1. 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 2. Economists working for the US have determined that the elasticity of demand for gasoline is 0.5 3. Capital Metro decided to increase n=bus fare rates from $2.00 to $2.21. consequently, the number of passengers who decide to take in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

1. Unit Elastic 2. Inelastic 3. Elastic Solution: Price elasticity of Demand= % change in quantity demanded / % change in price Midpoint Formula: Price elasticity of demand= | (Qnew- Qsold)/ (Qnew+Qsold/2) / (Pnew-Psold)/(Pnew+Psold/2) Unit elasticity is when the price of demand is equal to 1. unit elasticity describes the scenario where a change in the price of a product leads to a proportional change in quantity demanded. For Example, If a 10% decrease in price leads to a 10% increase in quantity demanded, demand is unit-elastic. Here, demand for the lunchbox is Unit Elastic. POED lunchbox= (15,000-20,000)/(15,000+20,000/2) / (4-3)/ (4+3/2) = .29/-.29 = |-1| = 1 POED Bus passes= (61,000-70,000)/(61,000+70,000/2) / (2.21-2.00)/(2.21+2.00/2) = -.14/.1 =| -1.4 | = 1.4

Use the Hypothetical market for rechargeable batteries illustrated in the accompanying graph to answer the questions that follow. A. Use interactive graph to illustrate the impact of an increase in consumer income. assume rechargeable batteries are a normal good. B. Use the midpoint formula to calculate the price elasticity of supply for supply (1) between the old and new price. C. Use the midpoint formula to calculate the price elasticity of supply for supply (2) between the old and new price.

A. Move the Demand curve to the Right B. 2.54 Units C. 1 units

Quantity Supplied doesn't respond to changes in price a shift in demand will not elicit a change in quantity supplied

Perfectly Inelastic

If the price elasticity of supply for steel is 0.83, Then the price elasticity of supply for steel is

Relatively inelastic

Consider 2 markets that are similiar in almost every way. Demand in one market is quite elastic though while demand in the other is quite inelastic. They have the same supply & the same equilibrium price & quantity. Suppose that the same size tax is placed on each market. sort the effects of the tax based on their relative size in different markets. Pseller is the price the seller recieves after the tax, Pbuyer is the price the buyer pays after the tax, Qtax is the quantity produced after the tax.

Smaller when demand is elastic - Pseller -Qtax - Gov Revenue - Pbuyer - Producer surplus after the tax is imposed