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Question 21 pts

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Question 31 pts

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Question 41 pts

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Question 51 pts

Calculate the change in total revenue when the price falls from 10.6 to 6.6. Assume a=10.6, b=6.6, c=2.3, and d=6.8. Note this change could be positive or negative.

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Question 61 pts

Suppose the price falls from 11.0 to 6.3. Assume a=11.0, b=6.3, c=2.4, and d=7.4. What is the decrease in total revenue that comes from the decrease in price? Express your answer as a positive number.

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Question 71 pts

Suppose the price falls from 9.6 to 5.8. Assume a=9.6, b=5.8, c=2.5, and d=6.6. What is the increase in total revenue that comes from the increase in quantity demanded?

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Question 81 pts

Suppose that at firm changes the price of the good it sells. The value of the change is 1.626. As a result the total revenue for the firm changes by 7.492. Is the demand for the good elastic? Put 1 for "yes" and 0 for "no.'

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Question 91 pts

If you are studying the demand for good type 8 below. Will it tend to be elastic or inelastic? Enter 1 for elastic and 0 for inelastic.

Type Characteristic 1 Fewer Substitutes 2 Short Run 3 Specific Brand 4 More Substitutes 5 Necessity 6 Long Run 7 Small Part of Budget 8 Categories of Product 9 Luxury 10 Large Part of Budget

Explanation / Answer

(1st Question)

Ed = (Change in Quantity demanded / Average quantity demanded) / (Change in price / Average price)

= [(5.9 - 6.1) / (5.9 + 6.1) / 2] / [$(3.6 - 2.2) / $(3.6 + 2.2) / 2]

= [- 0.2 / (12 / 2)] / [$1.4 / ($5.8 / 2)] = (- 0.2 / 6) / (1.4 / 2.9)

= - 0.069

Absolute value of Ed = 0.069 ~ 0.70

(Question 21) YES

When absolute value of elasticity is higher than 1, demand is elastic.

(Question 31) YES

When absolute value of elasticity is less than 1, demand is inelastic.

(Question 41)

Ed = [(b - a) / (b + a)] / (d - c) / (d + c)]

= [(5.5 - 10.5) / (5.5 + 10.5)] / [(7.7 - 2.9) / (7.7 + 2.9)]

= (- 5 / 16) / (4.8 / 10.6)

= - 0.69

NOTE: First 4 questions are answered.

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