1. Elasticity

(A) What does elasticity of demand measure? Be specific.

(B) What does it mean if the elasticity of demand equals -0.2?

(C) If you were advising a company facing D with an elasticity of -0.2, what would you advise them to do? Why?

(D) What does it mean in words if D for a product is very elastic? What causes D for a product to be more elastic?

2. Suppose the Red Sox raise ticket prices by 20% and the quantity of tickets falls by 10%.

(A) Would you say that Q fell a lot or a little? Why? What are you comparing the 10% to so that you can answer the question?

(B) Given your answer to part (A), is demand elastic or inelastic?

(C) What is the elasticity of demand?

4. Suppose that we tax companies that make a product.

(A) Which curve shifts in which direction? What happens to P and Q?

(B) If D for the product is very elastic, do P and Q change by more or less than if D is very inelastic? (Be sure to clearly answer clearly for P and for Q -- don't write "it changes more" because "it" could refer to P or Q.)

(C) Given your answer to part B, are consumers hurt more by the tax if D is elastic or inelastic? How is your answer related to the reasons that demand might be more elastic or inelastic? In other words, what factor might cause D to be elastic, and how does that factor explain whether consumers are hurt a lot or not?

(D) What about companies -- when are they hurt more?

5. Suppose we raise the minimum wage to $50 an hour. This type of price control prevents the market from reaching equilibrium.

(A) Why is it wrong to say that this will helpall workers?

(B) Why does it matter if D for labor is elastic or inelastic? (Your answer should say something like "If D for labor is very elastic, XXX will happen.")

6. Suppose that video game manufacturers do not offer health insurance to their employees.

(A) If the government requires the companies to provide health insurance for their workers. What will happen to the S and D for video games? Which curve or curves will shift in which direction? Why?

(B) What will happen to P and Q for video games?

(C) What will happen to the number of workers in the video game industry? Why?

7. Suppose good weather means that corn farmers have a good harvest.

(A) What will happen to the S and D for corn? Which curve or curves will shift in which direction?

(B) What will happen to P and Q for corn?

(C) If D is very inelastic, will P change a lot or a little? Is this change good or bad for farmers?