Elasticity problems:
a. The world demand for crude oil is estimated to have a short-run price elasticity of 0.05. If the initial price of oil were $100 per barrel, what would be the effect on oil price and quantity of an embargo that curbed world oil supply by 5 percent?
(For this problem, assume that the oil-supply curve is completely inelastic.)
b. To show that elasticities are independent of units, refer to Table 3-1. Calculate the elasticities between each demand pair. Change the price units from dollars to pennies; change the quantity units from millions of boxes to tons, using the conversion factor of 10,000 boxes to 1 ton. Then recalculate the elasticities in the first two rows. Explain why you get the same answer.
c. Jack and Jill went up the hill to a gas station that does not display the prices.Jack says, "Give me $10 worth of gas." Jill says, "Give me 10 gallons of gas."
What are the price elasticities of demand for gasoline of Jack and of Jill? Explain.
d. Can you explain why farmers during a depression might approve of a government program requiring that pigs be killed and buried under the ground?
e. Look at the impact of the minimum wage shown in
Figure 4-12. Draw in the rectangles of total income with and without the minimum wage. Which is larger? Relate the impact of the minimum wage to the price elasticity of demand for unskilled workers.