Econ Chapter 6 Assignment

If you compute the price elasticity of demand using a quantity of tickets from 1 to 8 and using a quantity of tickets from 1,000 to 8,000, the value of the price elasticity of demand is

the same because the percentage change in quantity demanded will remain the same.

Blossom, Inc., sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise the price to $9, and the firm only manages to sell 460 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is

0.33 and inelastic.

a. Use the midpoint formula and points referenced to calculate the elasticity of demand for that range of the demand curve. Elasticity of demand for D1 (points a to b in the left figure) = Elasticity of demand for D2 (points c to d in the right figure) = b. Do the same for the demand curve in the figure below. Elasticity of demand for D3 (points e to f in the above figure) =

D1 = 1.8 D2 = .56 D3 = 1

Interpretations of elasticity of demand

Ed > 1 demand is elastic Ed = demand is unit elastic Ed < demand is inelastic Ed = 0 demand is perfectly inelastic (D1 is vertical line) Ed = infinity demand is perfectly elastic (D2 is a horizontal line)

Midpoint Formula

Ed= change in quantity/ sum of quantities/2 divided change in price/sum of prices/2

In 2017, Leonardo da Vinci's painting Salvador Mundi sold for $450 million. Portray this sale in a demand and supply diagram when the quantity is 1. Is demand elastic, inelastic, or unit-elastic at this price? Comedian George Carlin once mused, "If a painting can be forged well enough to fool some experts, why is the original so valuable?" As an economics student you know the answer is that

Elastic there is only one original.

Price Elasticity of Supply Formula

Es = (%change in quantity supplied of good X) / (original quantity supplied a product X) divided by (%change in the price of good X)/ original price of proud X

Price elasticity of supply

Es > 1 supply is elastic Es = 1 supply unity elastic Es < 1 supply is inelastic Es = 0 supply is perfectly inelastic

If a firm's demand for labor is elastic, a union-negotiated wage increase will

cause the firm's total payroll to decline.

c. The elasticity of demand for D3 between points e and f is 1.00. d. In terms of the midpoint formula, what explains the change in elasticities? Compare the elasticities in this problem to those found in the original demand curves.

Given the shift in demand, the elasticity between points e' and f' in Figure c = 0.67 If we compare the elasticities, we can see that an increase in quantity at every price reduces the elasticity. The percentage change in quantity is smaller given the higher quantity purchased at every price.

The long run

Long run supply is even more elastic than in the short run

The immediate market period

Perfectly inelastic supply

The short run

Short run supply is more elastic than in the immediate market.

If a university passed a rule stating that university students must live in university dormitories, what effect would this have on the price elasticity of demand for dorm space? How might this rule affect room rates?

The price elasticity of demand would be more inelastic, and room rates would increase.

Total Revenue

Total revenue= price x quantity

Danny "Dimes" Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $2.00 each, he sells 250. At a price of $1.50 each, he sells 300. a. What is the elasticity of demand? b. Is demand elastic or inelastic over this price range? c. If demand had the same elasticity for a price decline from $1.50 to $1.00 as it does for the decline from $2.00 to $1.50, would cutting the price from $1.50 to $1.00 increase or decrease Danny's total revenue?

a. -5 b. Inelastic c. Decrease

Danny "Dimes" Donahue is a neighborhood's 9-year-old entrepreneur. His most recent venture is selling homemade brownies that he bakes himself. At a price of $1.50 each, he sells 100. At a price of $1 each, he sells 300. a. Is demand elastic or inelastic over this price range? b. If demand had the same elasticity for a price decline from $1.00 to $0.50 as it does for the decline from $1.50 to $1, would cutting the price from $1.00 to $0.50 increase or decrease Danny's total revenue?

a. Elastic b. Increase

a. What is the formula for measuring the price elasticity of supply? b. Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1,200 boxes of apples instead of 1,000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro's supply. c. Is its supply elastic, or is it inelastic?

a. Percentage change in quantity supplied/percentage change in price Correct b. ES = 1.91 c. Elastic

a. Complete the total revenue column from the demand-schedule data given below. b. Graph the demand curve and total revenue curve in the diagrams below. c. Price and total revenue move in the opposite direction when demand is

a. Total Revenue 5 8 9 8 5 b. graphs c. elastic

a. In the diagram below, draw a demand curve. b. Use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. c. What can you conclude about the relationship between the slope of this demand curve and its elasticity? The demand curve has a constant slope of −1 , and its elasticity decreases as we move down the curve. d. Explain in a nontechnical way why demand is elastic in the upper-left segment of the demand curve and inelastic in the lower-right segment.

a. draw the curve b. Moving from $5 to $4, Ed = 3.00 Moving from $4 to $3, Ed = 1.40 Moving from $3 to $2, Ed = 0.71 Moving from $2 to $1, Ed = 0.33 c. -1, decrease d. When the initial price is low and the initial quantity is high, the percentage change in quantity is less than the percentage change in price, making demand inelastic. When the initial price is high and the initial quantity is low, the percentage change in quantity exceeds the percentage change in price, making demand elastic.

Gus buys cupcakes every Saturday morning. When he walks into the bakery, he always orders by saying, "Give me 10 cupcakes." What does this tell you about Gus's elasticity of demand for cupcakes? a. Gus's demand for cupcakes is b. Use the graph below to illustrate Gus's demand for cupcakes.

a. perfectly inelastic.

The price elasticity of demand coefficient measures

buyer responsiveness to price changes.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week,

demand will become less price elastic.

Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

elastic for price increases that reduce quantity demanded from 4 units to 3 units.

Refer to the diagram. If price falls from $10 to $2, total revenue

falls from A + B to B + C, and demand is inelastic.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. In the immediate market period, the increase in demand will

increase equilibrium price but not equilibrium quantity.

The purpose of charging different prices to different groups of customers is to

increase revenue and in turn profits. Lower afternoon movie prices are an example of this type of pricing.

An antidrug policy that reduces the supply of heroin might

increase street crime because the addict's demand for heroin is highly inelastic.

Refer to the diagram. The decline in price from P1 to P2 will

increase total revenue by D − A.

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

inelastic.

Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game

is perfectly inelastic.

The basic formula for the price elasticity of demand coefficient is

percentage change in quantity demanded/percentage change in price.

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

the demand for pizza is elastic above $5 and inelastic below $5.