Explain question 2,8,13 and 14
(using the point form), cross-price elasticity with good 15. The FI r, and income elasticity. It is lev Q =8-2P +0.101 + P. 2011, e EXERCISES salary. & Cars made in Japan and cars made in the United Q is quantity demanded, P is the product price, P, reduce Use the following hypothetical demand schedule for movies States is the price of a related good, and I is income. Assume lastic to do exercises 1-4. 7. Explain how consumers will react to a job loss. What that P= $10, 1 - 100, and Px = 20. ply is Quantity Demanded Price Elasticity will be the first goods they will do without? What is the 14. Plot the following price and quantity. Then calculate 16 Who income elasticity of demand for those goods? price elasticity of demand at P = 8, P = 4, and P = 2. the pr 8. Calculate the income elasticity of demand from the fol elastic 100 80 $ 10 lowing data (use the arc or average). P $ 15 Income Quantity Demanded 40 $ 20 20 5 25 $15,000 20,000 10 $ 30 $20,000 30,000 I. a. Determine the price elasticity of demand at each a. Explain why the value is a positive number. 10 quantity demanded using the are or midpoint b. Explain what would happen to a demand curve as 12 formula: Percentage change in quantity income changes if the income elasticity was 20. 14 demanded = (Q: - Q,WQ, divided by percentage Compare that outcome to the situation that would 16 change in price = (P2 - PA) IP. occur if the income elasticity of demand was 0.2 18 b. Redo exercise la using price changes of $10 rather 9. a. Use the following figure to show what occurs to than $5. 2. Plot the price and quantity data given in the demand price and quantity when supply decreases and demand is perfectly elastic, schedule of exercise 1. Put price on the vertical axis and quantity on the horizontal axis. Indicate the price clas- b. Use the figure to show what occurs to price and ticity value at each quantity demanded. Explain why quantity when supply increases and demand is per- the elasticity value gets smaller as you move down the fectly inelastic. demand curve. 3. What would a 10 percent increase in the price of movie Perfectly Inelastic tickets mean for the quantity demanded of a movie the Demand ater if the price elasticity of demand was 0.1, 0.5, 1.0. ST and 5.0? 4. Using the demand curve plotted in exercise 1, illustrate Perfectly Elastic what would occur if the income elasticity of demand Demand was 0.05 and income rose by 10 percent. If the income elasticity of demand was 3.0 and income rose by 10 per cent, what would occur? 5. Pick a good whose demand is price clastic. List five sub stitutes and five complements. Which is easier to come up with, the list of substitutes or the list of comple- ments? Explain. 10. Explain why a 40 percent across-the-board tax increase 6: Are the following pairs of goods substitutes or comple- on businesses might harm consumers, ments? Indicate whether their cross-price elasticities are 11. The price elasticity of the demand for gasoline is -0.02 negative or positive. a. Bread and butter The price elasticity of demand for gasoline at Joe's 66 b. Bread and potatoes station is - 1.2. Explain what might account for the dil c. Socks and shoes ferent clasticities. d. Tennis rackets and golf clubs 12. The cross-price elasticity of the demand for cell phones e. Bicycles and automobiles and DVDs is 1.2. Explain. The cross-price elasticity of the demand for the iPod and D Foreign investments and domestic investments 13. Using the following equati and DVD's is -1.4. Explain equation for the demand for a good or service, calculate the price elasticity of demand
