Background There are a few different ways to calculate elasticity. Recall that in our textbook, the authors have opted for the midpointformula approach, as demonstrated in the "Work It Out" problem on page 111. As is stated on p. 137, "Most people approach their utility-maximizing combination of choices in a step-by-step way. This approach is based on looking at the tradeoffs, measures in terms of marginal utility, of consuming less of one good and more of another." We also know by now that in a hypothetical example with only two goods, Good 1 and Good 2, a consumer will choose the combination of goods that satisfies the utility-maximizing rule MU 1/P1 = MU2/P2, and the chosen combination of goods will be such that the total expenditure on the two goods does not exceed the available budget that acts as a constraint on the consumer's maximum attainable utility. (Note. While the consumer's goal is to satisfy the equality of MU1/P1 = MU2/P2, subject to the budget constraint, it is occasionally not possible to achieve perfect parity between the ratios. In those rare cases, the goal is to get as close as possible to parity, given available income and other information in the problem.) Instructions Problem 1 The equation for a demand curve is P = 2/Q. What is the elasticity of demand as price falls from 5 to 4? What is the elasticity of demand as the price falls from 9 to 8? Would you expect these answers to be the same? Problem 2 Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line for five cents per minute or he can drive to see her, at a round-trip cost of $2 in gasoline money. He has a total of $10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in the table below, figure out the points on jeremy's consumption choice budget constraint (it may be helpful to do a sketch) and identify his utilitymaximizing point. Round Trips Total Utility (TURT) Phone Minutes Total Utility (TUPM) 0 0 0 0 1 80 20 200 2 150 40 380 3 210 60 540 4 260 80 680 5 300 100 800 6 330 120 900 7 200 140 980 8 180 160 1040 9 160 180 1080 10 140 200 1100 Guidelines Write-up Guidelines and Assignment Submission Using this upload box, you will submit your work, which could be a picture of handwritten work, a proof-read 1-2 page write-up in MS Word documenting your research process and the main findings (if any research is involved in the assignment), or both, where applicable. For assignments requiring research and the write-up of a short paper, if the paper ends up being longer that 1-2 pages, that is fine, but aim for conciseness, if possible. You may use any write-up format of your choice, as long as the style results in a professional-looking document. Use 12-point size font, single spaced. Feel free to add headings and subheadings to structure your document into logical sections. Since a significant portion of your work for this assignment will be done in MS Excel, please submit your Excel file with the data and graphs, as well
