Question 1 - 25%

A hypothetical demand schedule for comic books in a small town is provided below.

Price

Quantity Demanded

Total Expenditure

Percent Change in Price

Percent Change in Quantity Demanded

Elasticity of Demand

$11

1

9

3

7

5

5

7

3

9

1

11

a.Fill in the table and calculate the price elasticity of demand over each price range. Be sure to use average prices and quantities when computing the percentage changes.

b.Plot the demand curve.

Question 2 - 25%

Suppose the market for frozen orange juice is in equilibrium at a price of $2.00 per can and a quantity of 4200 cans per month. Now suppose that at a price of $3.00 per can, quantity demanded falls to 3000 cans per month and quantity supplied increases to 4500 cans per month.

a.Draw the appropriate diagram for this market.

b.Calculate the price elasticity of demand for frozen orange juice between the prices of $2.00 and $3.00. Is the demand elastic or inelastic?

c.Calculate the elasticity of supply for frozen orange juice between the prices of $2.00 and $3.00. Is the supply elastic or inelastic?

d.Explain in general what factors would affect the elasticity of demand for frozen orange juice.

e.Explain in general what factors would affect the elasticity of supply of frozen orange juice.

Question 3 - 25%

What would you predict about the relative price elasticity of demand for each of the following items?

Explain your reasoning.

a.vacation

b.dining out

c.Vegetables sold at your local supermarket

d.Processed food with various substitutes

Question 4 - 25%

a.What do you understand by elasticity of supply? Why is this important for a supplier?

b.Why is cross elasticity of demand negative for complementary goods and positive for substitutes?