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[ECON 101] - Final Exam Guide - Everything you need to know! (38 pages long)

210 views38 pages
limecrab895
29 Mar 2017
School
University of Waterloo
Department
Economics
Course
ECON101
Professor
Predrag Rajsic

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ECON101 Full Course Notes
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ECON101 Full Course Notes
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Document Summary

Price elasticity of demand along a linear demand curve: Price of the good times quantity sold. Elasticity of demand and total revenue (same for expenditure): 1% price cut increases quantity sold by more than 1% total revenue increases. 1% price cut increases quantity sold by less than 1% total revenue decreases. 1% price cut increases quantity sold by 1% total revenue unchanged. Measures how the quantity demanded of a good responds to a change in income. Income elasticity of demand > 1: demand is income elastic. 0 < income elasticity of demand < 1: demand is income inelastic good is a normal good. Income elasticity of demand < 0: inferior good. Measure of the responsiveness of demand for a good to a change in the price of a substitute or a complement. % price of a substitute or complement. Measures responsiveness of the quantity supplied to a change in the price of a good.

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Related Questions

In this question, we will determine the price elasticity of demand using both the coefficient of elasticity and the total revenue test.

Use the demand schedule in the table below to answer the following questions.

Quantity Demand Price
10 200
20 150
30 100
40 50
50 25

Ā 

Ā 

Ā 

Ā 

a) Calculate the total revenue for each row in the demand schedule. indicate whether total revenue increases or decreases between each row int eh demand schedule. use the total revenue test to classify each price/quantity change as elastic, inelastic, or uni-elastic.

b) calculate the own price-elasticity coefficient for each row in the demand schedule. use the coefficients you calculate to classify each price/quantity change as elastic, inelastic, unit elastic.

in your answer it will be useful to recall that the midpoint formula for percentage change is:

%change midpoint = (final - initial) / ((finial + initial)/2)

and own price elasticity can be calculated by using the formula

Ed= (percentage change in quantity demand of product x) / (percentage change the in the price of product x)

1. Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4, the manufacturer must:

a. decrease price by 1.5%.

b. increase price by 1.5%.

c. increase price by 2.0%.

d. decrease price by 2.0%.

Ā 

2. Suppose that an Italian ice cream firm is facing a linear demand curve and that the current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If the firm decreases the product price,

Select one:

a. the demand becomes less inelastic, and total revenue increases.

b. the demand becomes more inelastic, and total revenue decreases.

c. the demand becomes more inelastic, and total revenue increases.

d. the demand becomes less inelastic, and total revenue decreases.

Ā 

3. Suppose that in a month, the price of movie rentals decreases from $3.25 to $3.Ā At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

a. elastic.

b. zero.

c. inelastic.

d. unitary elastic.

Ā 

4. The price elasticity of demand for color printers is 1.6, and you would like to see the quantity demanded of color printers increase by 32%. Then the percentage change in price should be:

Select one:

a. 15%.

b. 25%.

c. 10%.

d. 20%.

Ā 

5. The price of apple increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is:

a. 0.9.

b. 0.02.

c. 1.1.

d. 1.

For each case, choose the condition that characterizes demand: elastic demand, inelastic demand, or unit-elastic demand.

a. Total revenue decreases when the price increases.

b. The additional revenue generated by an increase in quantity sold is exactly offset by revenue lost from the fall in price received per unit.

c. Total revenue falls when output increases.

d. Producers in an industry find they can increase their total revenues by coordinating a reduction in industry output.

e. As the price of margarine rises by 20%, a manufacturer of baked goods increases its quantity of butter demanded by 5%. Calculate the cross-price elasticity of demand between butter and margarine. Are butter and margarine substitutes or complements for this manufacturer?

f. After Malia's income increased from $12,000 to $18,000 a year, her purchases of album downloads increased from 10 to 40 downloads a year. Calculate Malia's income elasticity of demand for albums.

g. Expensive restaurant meals are income-elastic goods for most people, including Sanjay. Suppose his income falls by 10% this year. What can you predict about the change in Sanjay's consumption of expensive restaurant meals?