APPLIED ECONOMICS

Elasticity of Supply and Demand

Think Critically (20 points)

Solve for the elasticities and use the appropriate formula. Identify whether it is inelastic, perfectly inelastic, unitary, elastic or perfectly elastic and draw the curve of each elasticity. Show your solutions, box your final answer and Indicate your interpretation of elasticity in sentences. Each item is equivalent to 5 points.

a.An increase in the price of good B from P10.00 to P15.00 causes the quantity demanded of good A to decrease by 20% from the level of 80 units.

b.An increase in Jose's income from P3000 to P3500 causes his demand for the steak to increase from 5 to 6 kilos a month.

c.Steak sells at a price of P50.00 per kilo. An increase in the price of steak by 10% causes your demand to decrease from 10 to 8 kilos a month.

d.The price of a movie ticket decreases from P300 to P150 which caused the supply to decrease from 105 to 75 movie tickets.

Answer: