Economics test 2 CALCULATION needed

If the price elasticity of demand for a product is equal to 0.7, then a 10 percent decrease in price will: a) Increase quantity demanded by 7 percent. b) Increase quantity demanded by 0.7 percent. c) Decrease quantity demanded by 7 percent. d) Decrease quantity demanded by 0.7 percent.

*a) Increase quantity demanded by 7 percent.*

Table refers to product demand at different prices. The price elasticity of demand when the price decreases from $8 to $6 is it: a) 3, b) 4, c) 1.166 or d) 5 Price Qty demanded $10 $30 $9 $40 $8 $50 $7 $60 $6 $70

*c) 1.166*

Suppose that the price elasticity of demand for eggs is 0.1. This implies that a 10% increase in price will cause the quantity demanded to *BLANK* by *BLANK* %.

-0.1 = % Change in qty demanded *DIVIDED by* % Change in price -0.1 = X/10 X = 10*(-0.1) = -1 % This implies that a 10% increase in the price of eggs causes the quantity demanded of eggs to fall by 1%.

Suppose that the price elasticity of demand for Mountain Dew is 4.4. This implies that a 10% increase in price will cause quantity demanded to *BLANK* by *BLANK* %.

-4.4 = = % Change in qty demanded *DIVIDED by* % Change in price -4.4 = X/10 X = -4.4*(10) = -44% This implies a 10% increase in the price of Mountain Dew will cause the quantity demand of Mountain Dew to fall by 44%

Suppose that when the price of apples rises by 20 percent, the quantity demanded of oranges rises by 6 percent. What is the cross elasticity of demand between apples and oranges?

Cross price elasticity of demand = % change in qty demanded of good 1 *DIVIDED by* % change in price of good 2 = 6/20 = 0.3>0 The two goods are substitutes.

The New York Times reported that that subway ridership declined after a fare increase." There were nearly 4 million fewer riders in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than in the previous December, a 4.3 percent decline". Estimate the price elasticity of demand for subway rides

Price elasticity of demand = % change in qty demanded *DIVIDED by* % change in price % Change in price = (1.5-1.25)/1.375*100 = 18.18% % Change in quantity demanded = -4.3% Price Elasticity of Demand = -4.3/18.18 = -0.2365 Drop the negative sign. Take the absolute value: 0.2365<1 Demand is inelastic