Chapter 6
Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic:
Bottled water: Elastic Toothpaste: Inelastic Crest toothpaste: Elastic Ketchup: Inelastic Diamond bracelets: Elastic Microsoft's Windows operating system: Inelastic
Suppose that the total revenue received by a company selling basketballs is $840 when the price is set at $60 per basketball and $840 when the price is set at $40 per basketball. Without using the midpoint formula, identify whether demand is elastic, inelastic, or unit-elastic over this price range.
Demand is: Unit-Elastic
What is the formula for measuring the price elasticity of supply?
Percentage change in quantity supplied/Percentage change in price.
What are the major determinants of price elasticity of demand?
Substitutability. Proportion of income. Luxuries versus necessities. Time.
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? What effect would this have on room rates?
The price elasticity of demand would be more inelastic, and room rates would increase.
Given the following income elasticities of demand: Product Income Elasticity Movies +3.4 Dental services +1.0 Clothing +0.5 The values indicate that:
a 1 percent increase in income will increase the quantity of movies demanded by 3.4 percent.
Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and D is -5.4. a. What can you conclude about how products A and B are related? b. What can you conclude about products C and D?
a. A and B are substitutes b. C and D are complements
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged? a. Price falls and demand is inelastic: b. Price rises and demand is elastic: c. Price rises and supply is elastic: d. Price rises and supply is inelastic: e. Price rises and demand is inelastic: f. Price falls and demand is elastic: g. Price falls and demand is of unit elasticity:
decrease decrease increase increase increase increase remain unchanged.
Price and total revenue move in the opposite direction when demand is...
elastic
A firm charges different groups of customers different prices in order to
increase revenue and profit. Lower afternoon movie prices are an example of this type of pricing.
Given the following income elasticities of demand: Product Income Elasticity Movies +3.4 Dental services +1.0 Clothing +0.5 If the income elasticity coefficient is negative, it means that
the good is inferior so that if income falls, the quantity demanded of the good will rise.
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 will remain the same.
