Book: economics a contemporary introduction

Questions for Review 1. Categories of Price Elasticity of Demand For each of the fol- 5. Determinants of Price Elasticity Would the price elasticity of lowing absolute values of price elasticity of demand, indicate demand for electricity be more elastic over a shorter or a longer whether demand is elastic, inelastic, perfectly elastic, perfectly period of time? Why? inelastic, or unit elastic. In addition, determine what would hap- 6. Determinants of Price Elasticity What factors help determine pen to total revenue if a firm raised its price in each elasticity the price elasticity of demand? What factors help determine the range identified. price elasticity of supply? a. E = 2.5 7. Cross-Price Elasticity Using demand and supply curves, pre- b. Ep = 1.0 dict the impact on the price and quantity demanded of Good c. E = 0. 1 of an increase in the price of Good 2 if the two goods are d. E= 0.8 substitutes. What if the two goods are complements? 2. Elasticity and Total Revenue Explain the relationship between 8. Other Elasticity Measures Complete each of the following the price elasticity of demand and total revenue. sentences: 3. Price Elasticity and the Linear Demand Curve How is it pos- a. The income elasticity of demand measures, for a given price, sible for many price elasticities to be associated with a single the in demand divided by the income demand curve? from which it resulted. 4. Determinants of Price Elasticity Why is the price elasticity of b. If a decrease in the price of one good causes a decrease in demand for Coca-cola greater than the price elasticity of de- demand for another good, the two goods are mand for soft drinks generally? c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered Problems and Exercises 9. Calculating Price Elasticity of Demand Suppose that 50 12. Income Elasticity of Demand Calculate the income elasticity units of a good are demanded at a price of $1 per unit. of demand for each of the following goods: A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Show that these data yield a price elas- Quantity Demanded Quantity Demanded ticity of 0.25. By what percentage would a 10 percent rise in When Income When Income price reduce the quantity demanded, assuming price elasticity Is $10,000 Is $20,000 remains constant along the demand curve? Good 1