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1. What is price elasticity of demand when prices increase from $3 to $4 and quantity decrease from 90 cups to 70 cups?

2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

Price Quantity Demanded by Business Quantity Demanded by Vacationers
150 2100 1000
200 2000 800
250 1900 600
300 1800 400

As the price of tickets rises from $200 To $250, what is the price elasticity of demand for a) business travelers and b) vacationers? Use the midpoint method to calculate. Why might vacationers have a diffeent elasticity from business travelers?

3. How can sellers utilize the price elasticity of demand for maximum total revenue?

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Divya Singh
Divya SinghLv10
28 Sep 2019

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Related questions

Suppose that the table below shows the daily demand amongst vacationers and commuters for train tickets from Boston to New York. As the price increases from $50 to $100, who has the higher price elasticity of demand? Why might this group's demand be more elastic?

Price of one-way ticket Quantity demanded (vacationers) Quantity demanded (commuters)
$50 2,000 1,000
$100 1,500 800
$150 1,000 600

1) The vacationers. They are likely to have more flexible travel plans and therefore more elastic demand.

2) The commuters. Their lower quantity demanded translates into a more elastic demand.

3) The vacationers. A higher quantity demanded always implies a more elastic demand.

4) The commuters. They are likely to have less flexible travel plans and therefore more elastic demand.

1. Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

(a) A hurricane in South Carolina damages the cotton crop.

(b) The price of leather jackets falls.

(c) All colleges require morning exercise inappropriate attire

(d) New knitting machines are invented.

 

2. (a) What is the definition of quantity demanded?

(b) What is the definition of quantity supplied?

(c) List the 5 factors that cause the demand curve to shift to the left or the right.

(d) Choose one of the factors from part (b) and consider the market for bananas. On a well-labeled diagram, demonstrate what will occur in this market if there is a change in this factor.

(e) List the 4 factors that cause the supply curve to shift to the left or the right.

(f) Choose one of the factors from part (e) and consider the market for scooters. On a well-labeled diagram, demonstrate what will occur in this market if there is a change in this factor.

(g) Choose one factor from part (b) and another from part (e) and consider the market for minivans. On a well-labeled diagram, demonstrate what will occur in this market given the change in both factors. (Hint: Draw separate diagrams for parts (d), (f), & (g))

3. Suppose that the price of basketball tickets at your college is determined by market forces. Currently, the demand and supply schedules are as follows:

page1image3877024

(a) Draw the demand and the supply curves. What is unusual about this supply curve? Why might this be true?

(b) What are the equilibrium price and quantity of tickets?

(c) Your college plans to increase total enrollment next year by 5,000 students. The additional students will have the following demand schedule:

page1image3870304

Now add the old demand schedule and the demand schedule for the new students to calculate the new demand schedule for the entire college. What will be the new equilibrium price and quantity?

 

 

4. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD = 1600 − 300P, where QD is the quantity demanded and P is the price. The supply schedule can be represented by the equation QS = 1400 + 700P, where QS is the quantity supplied.

(a) Sketch a graph representing the market for chocolate bars. Identify the equilibrium point on your graph.

(b) Calculate the equilibrium price and quantity in the market for chocolate bars.

 

5. For each of the following pairs of goods, which good would you expect to have more elastic demand and why?

(a) Required textbooks or mystery novels

(b) Beethoven recordings or classical music recordings in general

(c) Subway rides during the next six months or subway rides during the next five years

(d) Root beer or water

(e) Insulin or Tylenol

(f) Food or bananas

 

6.Consider the following information from the market for lemonade:

Price Quantity Demanded Quantity Supplied
$1 500 cups 150 cups
$2 200 cups 310 cups

(a)  As the price changes from $1 to $2, what is the value of price elasticity of demand?

(b)  As the price changes from $1 to $2, what is the value of price elasticity of supply?

(c)  Sketch a diagram demonstrating the market for lemonade. Are the supply and demand curves relatively inelastic or elastic? Explain.

(d)  Suppose that when the price of lemonade increases from $1 to $2, the quantity demanded of orange juice increases from 150 cups to 190 cups. Calculate cross-price elasticity of demand for orange juice.

(e)  Are orange juice and lemonade substitute or complementary goods? Explain.

 

7. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

page2image1834528

(a)  As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations)

(b)  Why might vacationers have a different elasticity from business travelers?

 

8. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run.

(a)  If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demand in the short run? In the long run? (Use the midpoint method in your calculations)

(b)  Why might this elasticity depend on the time horizon?


9. The Government has decided that the free-market price of cheese is too low.

(a) Suppose the government imposes a binding price floor in the cheese market. Draw a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese?

(b) Farmers complain that the price foor has reduced their total revenue. Is this possible? Explain

(c) In response to farmer's complaints, the government agrees to purchase all the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?

True/False
If the quantity demanded for a product increases from 100 to 150 units when
the price decreases from $14 to $10, the price elasticity of demand for this product,
using the midpoint formula, in this price range is 1.2


A product with a price elasticity of demand equal to 1.5 is described as price
inelastic.

Demand tends to be inelastic at higher prices and elastic at lower prices.

Multiple Choice
If price rises from $80 to $90 and quantity demanded falls from 250 to 200,
then
a. The demand is inelastic
b. Total receipts rise.
c. Elasticity is equal to 0.625.
d. Elasticity is greater than one.

When Detroit’s bus fare increased from 40 cents to 60 cents, the number of riders
decreased from 800 per week to 620 per week. Over the price range given, the demand
curve for bus service in Detroit is
a. Elastic
b. Unit elastic
c. Inelastic
d. Impossible to determine

Stan’s Discount Tires reduced the price on its Goodyear radial tires from $65
per tire to $55 per tire. The following month, sales of this tire increased from
320 units to 500 units. The coefficient of elasticity for this tire was
a. 1.0
b. 0.63
c. 3.65
d. 1.33

A 20 percent increase in Miss Sarlo’s income resulted in an increase in her
annual consumption of steak from 10 to 15 pounds. Miss Sarlo’s income elasticity
of demand for steak is
a. 0.25
b. 0.50
c. 2.0
d. 2.5

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