Please answer all of the following and show your work so this can be studied, th

Question

Please answer all of the following and show your work so this can be studied, thanks

1. Explain relationship between elastic, inelastic, unit elastic demands vs. total evenue 2. In a discussion of tuition rates, a university official argues that the demand for admission is completely price inelastic. As evidence she notes that while the university has doubled its tuition (in real terms) over the past 15 years, neither the number nor quality of students applying has decreased. Would you accept this argument? Explain briefly. (Hint: The official makes an assertion about the demand for admission, but does she actually observe a demand curve? What else could be going on?) 3. Let the market demand for rye bread be given by Q 500I 250 Prye 400 Pwheat, where Q is monthly demand in number of loaves, I is average monthly income in dollars, Prye is the price of a loaf of rye bread, and Pwheat is the price of a loaf of wheat bread. IfI $1,000$2, and wa $3, calculate the following (based on 10% increases in denominators): (a) the arc price elasticity of demand for rye bread (b) the arc price elasticity of demand for wheat bread (c) the arc cross-price elasticity of demand for rye bread (d) the arc income elasticity of demand for rye bread

Explanation / Answer

(1)

Price elasticity of demand (Ed) = Percentage change in quantity demanded / Percentage change in price

When demand is elastic, absolute value of Ed is higher than 1, which means that if price increases (decreases) by N%, quantity demanded decreases (increases) by more than N%, therefore total revenue decreases (increases) with increase (decrease) in price.

When demand is inelastic, absolute value of Ed is lower than 1, which means that if price increases (decreases) by N%, quantity demanded decreases (increases) by less than N%, therefore total revenue increases (decreases) with increase (decrease) in price.

When demand is unitary elastic, absolute value of Ed is equal to 1, which means that if price increases (decreases) by N%, quantity demanded decreases (increases) by exactly N%, therefore total revenue remains unchanged with increase (decrease) in price.

NOTE: As per Answering Policy, first question has been answered.

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