ECN 212 HW 3
Suppose the demand function for good X is given by Qdx = 15-0.5Px-0.8Py where Qdx is the quantity demanded of good X, Px is the price of good X, and Py is the price of good Y, which is related to good X. Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $5 and the price of good Y decreases from $5 to $2, the cross price elasticity of demand is about
-0.29, and X and Y are complements
Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is
-0.71, and X and Y are complements.
If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is
0.75
Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is
1.14.
When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about
1.29, and a decrease in price from $200 to $160 results in an increase in total revenue
Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about
1.43, and an increase in the price will cause hotels' total revenue to decrease
Suppose that demand is given by the equation: Qd= 180-3P And supply is given by the equation: Qs=P-20 Using the midpoint formula, calculate the elasticity for demand when the price changes from $40 to $45 (Round your answer to 2 decimal places)
2.43 , and elastic
Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of
a necessity versus a luxury in determining the price elasticity of demand.
You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
be negative and your roommate's would be positive
If the demand for bananas is elastic, then an increase in the price of bananas will
decrease total revenue of banana sellers
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. The change in equilibrium quantity will be:
greater in the beef market than in the milk market
A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
inelastic.
Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
positive.
If price elasticity of demand = |-1.5| and price decreases by 10 percent, then
quantity demanded will increase by 15 percent
The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
raise the price of the cinnamon rolls
If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should
reduce the number of acres they plant to decrease their output
