Problem3 Determinants
ofelasticity
List the five
factors that make demand for a goodmore
or less elastic. Give an exampleforeach(preferablyoneIdidn’ttalkaboutinclass).
1.
2.
3.
4.
5.
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Problem4 Elasticity
#1
a.
Ifyourincomerisesby20%andyoudecidetoincreaseyourpurchasesofclothing
by15%, what is your income
elasticity of demand for clothing? Is clothing a normal or inferiorgood?
b.
Supposetheincomeelasticityofdemandforgadgetsis-2.Answerthefollowing
questions:
•
If income rises by1%, by
what percentage will the demand for gadgets fall orrise?
•
If income falls by10%, by
what percentage will the demand for gadgetsfall orrise?
•
Aregadgetsanormalorinferiorgood?
c.
Supposethecrosspriceelasticityofdemandforgadgetsandwidgetsis0.5.Answer
the followingquestions:
•
If the price of gadgets rises by1%, by
what percentage will the demand for widgetsfallorrise?
•
If the price of gadgets falls by3%, by
what percentage will the demand for widgetsfallorrise?
•
Aregadgetsandwidgetscomplementsorsubstitutes?
………
Problem5 Elasticity#2
1.
If price elasticity of demand is
1.25, and price rises from $8 to $12, bywhat
percentage will quantity demanded fall?
2.
Ifincomeelasticityofdemandis-0.75,andincomesfallfrom$52,500to$51,000
per capita (per person), then by
what percentage will quantity demandedfall orrise?
3.
Supposeyou’recurrentlysellingslicesofpizzafor$3each,andthepriceelastic-
ityof demand for pizza is 3. By
what amount (in dollars and/or cents) would youhavetoreduceyourpricepersliceinordertoincreasenumberofslicesyousell by15%?
………
Problem6 RelatedGoods
1.
Ifthepriceoflasereyesurgeryfallsby50percentandthequantityofcontact lensesdemandedfallsby25percent,findthecrosspriceelasticityofdemand
forthesetwogoods.
2.
Arelasereyesurgeryandcontactlensessubstitutesorcomplements?
3.
Suppose the price of laser eyesurgery falls from $3,000 to $2,500.
By what percentagewillsalesofcontactlensesfalls?
………
Problem7 Comparingdemands
Drawademandcurve,D1,thendrawamoreelasticdemandcurve,D2.
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Problem8 Perfection#1
Drawaperfectlyinelasticdemandcurve.
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Problem9 Elasticity
andprices
Hint: draw graphsforthese
1.
If the demand for a goodis perfectly elastic and its price is
$15, howmuchwoulditspricebeifitssupplydoubled?
2.
If the demand for a goodis perfectly inelastic and its price
is $50, howmuchwoulditspricebeifitssupplydoubled?
………
Problem10 Perfection#2
1.
Thedemandforaproductisperfectlyinelasticandthesupplyoftheproductis
perfectlyelastic.Ifitsequilibriumpriceis$10,drawagraphrepresentingthis market.
2. Onthesamegraph,showanewequilibriumpriceof$20.
………
Problem11 Perfection#3
1.
Thesupplyofaproductisperfectlyinelasticandthedemandfortheproductis
perfectlyelastic.Ifitsequilibriumpriceis$50,drawagraphrepresentingthis market.
2. Onthesamegraph,showanewequilibriumpriceof$25.
………
Problem 12 Predictingthe priceof oil
Intheyear2020theworldsupplyofoilpeaksandproductioncontinuesforthenext
decadeatthatlevel.Ifthepriceofoilis$80abarrelin2020andworldwidedemand roseby50percentoverthefollowingdecade,abouthowmuchwillthepriceofoilbein2030?(Hint:Drawagraph.)
………
Problem 13 Elasticity
andcigarettes
Ifthepriceelasticityofdemandforcigarettesamongteenagesis0.5,howmuchwould
the price of a pack of cigarettes haveto
beraised from $10 to cut teenage
smoking by20%?
………