2. Using the midpoint method The following graph shows two known points (X and Y) on a demand curve for apples. Y X Demand PRICE (Dollars per pound) w N 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of pounds of apples) 0.1 0.21 0.47 2.14 According to the midpoint method, the price elasticity of demand for apples between point X and point Y is approximately 0.21 _ , which suggests that the demand for apples is ELASTIC, INELASTIC between points X and Y.5. Elasticity and total revenue The following graph shows the daily demand curve for bikes in San Francisco. Use the green rectangle (triangle symbols) to compute total revenue at various prices along the demand curve. Note: You will not be graded on any changes made to this graph. 300 275 250 175 150 125 100 PRICE (Dollars per bike) a 12 QUANTITY (Bikes) 1513212427303336 H Total Revenue On the following graph, use the green point (triangle symbol) to plot the annual total revenue when the market price is $50, $75, $100, $125, $150, $175, and $200 per bike. 3180 A 2940 Total Revenue 2700 2460 2220 TOTAL REVENUE (Dollars) 980 740 1500 1260 0 1020 0.6 0 25 50 100 125 150 175 200 225 250 275 300 PRICE (Dollars per bike) 1.67 13.5 According to the midpoint method, the price elasticity of demand between points A and B is approximately 0.6 Suppose the price of bikes is currently $125 per bike, shown as point A on the initial graph. Because the demand between points A and B is inelastic , a $25-per-bike decrease in price will lead to a decrease in total revenue per day. elastic, unit increase, no change In general, in order for a price increase to cause an increase in total revenue, demand must be inelastic _ elatic, unit elastic7. Substitutes, complements, or unrelated? You work for a marketing rm that has just landed a contract with Run-ofthe-Mills to help them promote three of their products: guppy gummies, raskels, and mookies. All of these products have been on the market for some time, but, to entice better sales, Run-ofthe-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-ofthe-Mills provides your marketing rm with the following data: when the price of guppy gummies decreases by 20%, the quantity of raskels sold decreases by 22% and the quantity of mookies sold increases by 7%. Your job is to use the cross-price elasticity between guppy gummies and the other goods to determine which goods your marketing rm should advertise together. Complete the first column of the following table by computing the cross-price elasticity between guppy gummies and raskels, and then between guppy gummies and mookies. In the second column, determine if guppy gummies are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good you should recommend marketing with guppy gummi Y es Relative to Guppy Gummies No Cross-Price Elasticity of Demand Complement or Substitute Recommend Mar ith Guppy Gummies Raskels complement, substitute v v Monkies |:| complement , substitute 7 v 8. The variety of supply curves The following graph displays four supply curves (HH, II, JJ, and KK) that intersect at point A. 20 18 K 16 14 B D 12 10 H H PRICE (Dollars per unit) F K N 6 8 10 12 14 16 18 20 QUANTITY (Units) Using the graph, complete the table that follows by indicating whether each statement is true or false. Statement True False Between points A and B, curve II is unit elastic. O O Curve JJ is more elastic between points A and D than curve KK is between points A and C. O O Between points A and C, curve KK is elastic. O O9. Application: Demand elasticity and agriculture Consider the market for com. The following graph shows the weekly demand for corn and the weekly supply of corn. Suppose a spell of unusually good weather occurs, which enables corn producers to generate more corn per acre of land. Show the effect this shock has on the market for corn by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. 20 o SUPP' Demand 18 a u g B 12 _ Supply *9. g -T a _ I L\" I U E I I 4 I I I I D 0 1o 20 an 40 50 QUANTITY (Millions of bushels) One of the growers is concerned about the price decrease caused by the spell of good weather because she feels it will lower revenue in this market. As an economits student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. One of the growers is concerned about the price decrease caused by the spell of good weather because she feels it will lower revenue in this market. As an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. Using the midpoint method, the price elasticity of demand for corn between the prices of $10 and $8 per bushel is , which means demand is Inelastic, unit elastic elastic between these two points. Therefore, you would tell the grower that her claim is correct se total revenue will 0.41 increase as a result of the spell of good weather. incorrect decrease 0.82 1.22 1.64 Confirm your previous conclusion by calculating total revenue in the corn market before and after the spell of good r. Enter these values in the following table. Before Spell of Good Weather After Spell of Good Weather Total Revenue (Millions of Dollars)