MEL 5
Suppose that after hurricane Irene, the average income in Cape Charles, Virginia decreased by 12 percent. In response to this change in income, suppose the quantity of steak demanded in Cape Charles (holding the price of steak constant) decreased by 14 percent. What is the income elasticity of demand for steak in Cape Charles? The income elasticity of demand for steak in Cape Charles is 1.17. (Enter your response rounded to two decimal places.) In this instance, steak in Cape Charles is normal and a luxury.
-14% (decrease)/ -12% (decrease) = 1.17
Suppose income increases by 10 percent and, as a result, the quantity of a particular brand of automobile demanded (holding the price for this particular automobile constant) decreases by 18 percent. The income elasticity of demand for this brand of car is −1.80. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) This particular brand of automobile is a(n) inferior good. In another example, suppose market research shows that a particular brand of truck is a normal good and a luxury. If so, then the income elasticity of demand for this truck is
-18% (decrease)/ 10% (increase) = -1.80 greater than 1.
Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If so, then beer and wine are substitutes. Gao and colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15. If the price of spirits increases by 10 percent, then the quantity of beer demanded will increase by 1.5 percent. (Enter your response rounded to one decimal place.) In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be −0.09. If so, then beer is
.15/ 10% = 1.5% an inferior good.
Suppose the price of salt increases by 10 percent and, as a result, the quantity of pepper demanded (holding the price of pepper constant) decreases by 2 percent. The cross-price elasticity of demand between salt and pepper is -0.20. (Enter your response rounded to two decimal places and include a minus sign if appropriate.) In this example, salt and pepper are complements. Instead, suppose salt and pepper were substitutes. If so, then the cross-price elasticity of demand between salt and pepper would be
2% (decrease)/ 10% (increase) = -.20 positive
Consider the market for a new CD, where the price is initially $5.00 and 40 thousand copies are sold, as indicated in the figure at point A. The music company is considering lowering the price to $4.00, at which price 44 thousand copies would be sold. What is total revenue at the initial price (at point A)? Revenue is initially $200 thousand. What would total revenue be at the lower price (at point B)? Revenue would be $176 thousand. Given this change in total revenue, is demand between these prices elastic or inelastic? Demand (in this range of prices) is inelastic.
At point A: 40 *5 = 200 At point B: 44 * 4 = 176
Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement from the Centers for Disease Control and Prevention: "A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5 percent." Given this information, compute the range of price elasticity of demand for cigarettes. Source: Shaila Dewan, "States Look at Tobacco to Balance the Budget," New York Times, March 20, 2009. According to the article, the price elasticity of demand for cigarettes ranges from −.3 (the lowest end of the range in absolute value) to −.5. Explain whether the demand for cigarettes is elastic, inelastic, or unit elastic. The price elasticities in this range If cigarette manufacturers raise prices, will their revenue increase or decrease? Briefly explain. If manufacturers raise prices, then their revenue will
If Consumption decreases by 3% then price elasticity of demand is -3%/10%= -.3 If Consumption decreases by 5% then price elasticity of demand is -5%/10%= -.5 ^The Price elasticities are less than 1 hence they are inelastic are inelastic because they are less than one (in absolute value). increase because the percentage increase in price will be larger than the percentage decrease in quantity.
Suppose the demand for a Czech novel translated into English is perfectly inelastic. Assume the initial price of the translated novel is $21.00 and the quantity demanded is 993 copies per year. If the price of the translated novel increases by $1.00, then the quantity demanded will be 993 copies per year. Next, suppose the demand for a mystery novel by Stephen King is infinitely elastic. In this example, assume the initial price of the novel is $28.00 and the quantity demanded is 79 thousand copies per year. If the price of the mystery novel increases by $2.00, then the quantity demanded will be 0 copies per year.
If the price increases there will be no change in the quantity demanded since the demand is perfectly inelastic the demand is infinitely elastic then any increase in the price will bring the quantity demanded down to 0.
The following table gives data on the price of rye and the number of bushels of rye sold in 2020 and 2021. Calculate the change in the quantity of rye demanded divided by the change in the price of rye. Measure the quantity of rye demanded in bushels. The change in the quantity of rye demanded divided by the change in the price of rye in bushels is -2000000. Calculate the change in the quantity of rye demanded divided by the change in the price of rye, but this time measure the quantity of rye demanded in millions of bushels. The change in the quantity of rye demanded divided by the change in the price of rye in millions of bushels is -2. Compared to part a, the answer to part b is smaller in absolute terms. Finally, assuming that the demand curve for rye didterm-8 not shift between 2020 and 2021, use the information in the table to calculate the price elasticity of demand for rye. Using the midpoint formula, the price elasticity of demand for rye is -.50.
a. Change in quantity of rye demanded =11,000,000 - 9,000,000 = 2,000,000 bushels Change in price of rye = 2 - 3 = -1 So, Change in quantity of rye demanded/Change in price of rye = 2,000,000/(-1) = -2,000,000 b. Change in quantity of rye demanded = 11,000,000 - 9,000,000 = 2,000,000 bushels Change in price of rye = 2 - 3 = -1 So, Change in quantity of rye demanded/Change in price of rye = 2/(-1) = -2, smaller (as 2 < 2,000,000) c. Midpoint formula of elasticity of demand = https://www.omnicalculator.com/finance/price-elasticity-demand
6, Pace University in New York raised its annual tuition from $24,250 to $29,600. Freshman enrollment declined from 1,425 in fall 2005 to 1,110 in fall 2006. Assuming that the demand curve for places in the freshmen class at Pace did not shift between 2005 and 2006, use this information to calculate the price elasticity of demand Use the midpoint formula in your calculation. Source: Karen W. Arenson, "At Universities, Plum Post at Top Is Now Shaky," New York Times, January 9, 2007. The price elasticity of demand for Pace University for the fall of 2006 is - 1.25. (Hint: include the negative sign and enter your response rounded to two decimal places.) The demand for places in Pace's freshman class is price elastic. Calculate the total revenue generated from Pace's freshman class in 2005 $34556250. Calculate the total revenue generated from Pace's freshman class in 2006 $32856000. The total amount of tuition Pace received from its freshman class fell in 2006 compared with 2005.
https://www.omnicalculator.com/finance/price-elasticity-demand
Consider the market for a new DVD movie, where the price is initially $8 and 44 copies are sold per day at a superstore, as indicated in the figure to the right. The superstore is considering lowering the price to $4. What is the price elasticity of demand between these two prices (use the Midpoint Formula)? The price elasticity of demand is negative 0.25−0.25. (Enter your response as a real number rounded to two decimal places.)
https://www.omnicalculator.com/finance/price-elasticity-demand
Suppose the price of tires increases from $50 per tire to $60. In response, the quantity of tires supplied increases from 10,000 to 35,000 tires. What is the price elasticity of supply for tires? Using the midpoint formula, the price elasticity of supply is 6.11. (Enter your response rounded to two decimal places.)
https://www.omnicalculator.com/finance/price-elasticity-demand
Use the midpoint formula to calculate the price elasticity of supply between point A and point B for the diagram to the right. The calculated price elasticity of supply is
https://www.omnicalculator.com/finance/price-elasticity-demand
Use the graph for Yolanda's Frozen Yogurt Stand to answer the questions that follow. Use the midpoint formula to calculate the price elasticity of demand for D1 between point A and point C and the price elasticity of demand for D2 between point A and point B. Price elasticity of demand for D1 = −1.09 Price elasticity of demand for D2 = −0.44 Which curve is more elastic?D1 Suppose Yolanda is initially selling 40 cones per day at a price of $2.50 per cone. If she changes her price to $1.50 per cone and her demand curve is D Subscript 1, what will be the change in her revenue? $5 What will be the change in her revenue if her demand curve is D Subscript 2? $-25.00 (Enter your response rounded to two decimal places and include a minus sign if necessary.)
https://www.omnicalculator.com/finance/price-elasticity-demand https://www.omnicalculator.com/finance/price-elasticity-demand D1 because it's less of an up-and-down straight line Total revenue before price change= $2.5*40= $100 Total revenue when the price is $1.50 and the demand curve is D1= $1.5×70= $105 Change in Revenue: 105-100 = $5 Total revenue before price change= $2.5*40= $100 Total revenue when the price is $1.50 and the demand curve is D2= $1.5×50= $75 Change in Revenue: 75-100= $-25
The Delaware River Joint Toll Bridge Commission increased the toll on the bridges on Route 22 and Interstate 78 from New Jersey to Pennsylvania from $0.50 to $1.00. Use the information in the table below to answer the questions (assume nothing other than the toll change occurred during the months that would affect customer demand). Source: Garrett Therolf, "Frugal Drivers Flood Free Bridge," (Allentown, Pennsylvania) Morning Call, January 20, 2003. Using the midpoint formula, for the Route 22 Bridge, the price elasticity of demand is −0.27. (Enter your response rounded to two decimal places. Be sure to include the minus sign.) Using the midpoint formula, for the Interstate 78 Bridge, the price elasticity of demand is -0.16. (Enter your response rounded to two decimal places. Be sure to include the minus sign.) How much total revenue did the commission collect from both bridges in November? $623679.50 (Enter your response rounded to two decimal places.) How much total revenue did the commission collect from both bridges in December? $1089948.00 (Enter your response rounded to two decimal places.) The sum of total revenue for both bridges rose from November
https://www.omnicalculator.com/finance/price-elasticity-demand https://www.omnicalculator.com/finance/price-elasticity-demand https://www.omnicalculator.com/finance/revenue (to get the total price, just add the quantities up) https://www.omnicalculator.com/finance/revenue (to get the total price, just add the quantities up)
Consider the market for a natural resource, where the price is initially $24,000 per ton and 24,000 thousand tons are supplied. Suppose the price of the resource falls to $23,500 per ton, at which price the market supplies 23,000 thousand tons. What is the price elasticity of supply between these prices? Using the midpoint formula, the price elasticity of supply is 2.05. (Enter your response as a real number rounded to two decimal places.) As such, supply is elastic.
https://www.omnicalculator.com/finance/price-elasticity-supply
Suppose the figure to the right illustrates the monthly demand for imported rugs at a local rug gallery. Suppose the price of rugs increases from $4,500 to $5,000. Total revenue before the price change is $315000. (Enter your response as an integer.) Total revenue after the price change is $300000. (Enter your response as an integer.) The change in total revenue is $-15000 (Enter your response as an integer and include a minus sign if appropriate.) The demand for imported rugs at this rug gallery is elastic over the given price range.
https://www.omnicalculator.com/finance/revenue https://www.omnicalculator.com/finance/revenue 300000 - 315000 = -15000
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be −2.5 and the price elasticity of demand for all types of breakfast cereals to be −0.9. The demand for Post Raisin Bran cereal is elastic, and the demand for all types of breakfast cereals is inelastic. Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast cereals? Post Raisin Bran cereal
is defined more narrowly.
Compare the demand for pepper with demand for clothes. The demand for pepper is likely
more inelastic because pepper tends to represent a smaller fraction of a consumer's budget.
Which of the following is a primary determinant of the price elasticity of supply? The price elasticity of supply is affected by In particular, the supply curve for a particular product will be increasingly more inelastic over a shorter period of time.
the passage of time.
The formula for the price elasticity of supply is If an increase of 8 percent in the price of frozen pizzas results in a 14 percent increase in the quantity of frozen pizzas supplied, the price elasticity of supply for frozen pizzas is 1.75 (Enter your response rounded to two decimal places.) Is the supply of pizzas elastic or inelastic?
the percentage change in quantity supplied divided by the percentage change in price. 14% increase/ 8% increase = 1.75 The supply of frozen pizzas is elastic.
