1. Recall the example Beer Prices and Highway Deaths, from the chapter. A doubling of the tax on beer will reduce the number of highway deaths among young adults’ by_______ percent.
2. Recall the example Cigarette Prices and Teenagers from the chapter. A 20 percent increase in the price of cigarettes will reduce the quantity of cigarettes demanded by teenagers by _______percent.
3. If the price elasticity of demand is 0.60, a 10 percent increase in price will the quantity demanded by _______percent.
4. MADD Beer Tax. Recall the example Beer Prices and Highway Deaths, from the chapter. The organization Mothers against Drunk Driving (MADD) has a goal of reducing the number of highway deaths among young adults by 39 percent. Assume that the number of highway deaths for young adults is proportional to their beer consumption. By what percentage must the price of beer increase to meet the MADD target?
5. Meeting the Teenage Smoking Target. Recall the example Cigarette Prices and Teenagers from the chapter. One of the stated objectives of the federal Tobacco Agreement of 1997 was to reduce teenage smoking by 60 percent. The price must increase by _______percent to achieve this target.
6. Use the Correct Elasticity. Your company currently sells 50 units of salt per year and has decided to increase its price from $1.00 to $1.20. In a meeting, one person says, As shown in Table 20.2 on page 414, the price elasticity of demand for salt is 0.10, so if we increase the price of salt by 20 percent, the quantity demanded will decrease by 2 percent. What s wrong with this statement?
7. Projecting Transit Ridership. As a transit planner, your job is to predict ridership and total fare revenue. Suppose the short-run elasticity of demand for commuter rail (over a one-month period) is 0.60, and the long-run elasticity (over a two-year period) is 1.60. The current ridership is 100,000 people per day. Suppose the transit authority decides to increase its fares from $2.00 to $2.20.
a. Predict the changes in train ridership over a one month period (the short run) and a two-year period (the long run).
b. Over the one-month period, will total fare revenue increase or decrease? What about the two-year period?
8. Income and the Price Elasticity of Demand for Medical Care. Like many other developing nations, Peru subsidizes medical care, charging consumers a small fraction of the cost of providing services such as visits to medical clinics. The price elasticity of demand for medical care is 0.67 for poor households but only 0.03 for wealthy households. Suppose the government reduced its subsidies for medical care, and the price to consumers increased by 10 percent. Predict the changes in the quantity of medical care demanded (for example, the number of visits to clinics) for poor households and wealthy households.