for a luxury than for ECON 2102 Summer 2018 Dr. Sewell 3. Price elasticity of de
ID: 1151903 • Letter: F
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for a luxury than for ECON 2102 Summer 2018 Dr. Sewell 3. Price elasticity of demand would be would be larger smaller in the long run than in the short run. Elasticity of demand increases decreases when substitutes become available. Elasticity of demand would be larger smaller for table salt than for a necessity. Elasticity of demand naiie HOMEWORK TWO Directions: This homeworkis due on Thursday, Jut the start of class. To receive credit, it must be submitted paper towels. in person and in hard copy (ahsolutely o electronicsssions). You may print the assignment and answer the questions on that copy or you may cieari/ wirte just the auswers onau ordinary pieoe of paper I. What is the numerical value for the price elasticity of demand if a price change causes no change in quantity demanded? no change in total revenue? 4. If income elasticity of demand is positive, then an increase in income would cause a rightward leftward shift of the demand curve. This product is a(n) consumer income from S10.000 to $12,000 caused an increase in demand from 100 units to 150 units, then the nurmeri value or incume elasticity is good. If at a constant price, an increase in What is the numerical value for clusticity of demand if a price change causes .What is the elusticity of demand for horizntal demund cure What is the clasticity of demand if a price incrcase leads to a deercase in tetal revcrue? lasic nclastic what is the numerical value for the elasticity of demand if' a 2% price decrease leads to n 5% increase in quantity demanded? 2. Consider the following demand schedule for widgets: End of doment Price (S per widget) Quantity (# per month) 15 50 70 85 95 What is the price elastiity of demand for widgels between S8 and S10? demand belween S2 and $4? is total revenue per month at a price of SI0? total revenue to risefall becnuse demand is clasticinclastic Wiat is the elasticity uf As price decreases, demand becones moreless elastie. Wlat A reduction in price from S10 to S8 causesExplanation / Answer
1. What is the numeric value for the price elasticity of demand if the price change causes no change in the quantity demanded?
Answer – 0 (Perfectly inelastic demand)
What is the numeric value of the elasticity of demand if a price change causes no change in the total revenue?”
Answer – 1
What is the elasticity of demand for a horizontal demand curve?
Answer - ? (infinity, perfectly elastic demand)
What is the elasticity of demand if a price increase leads to decrease in total revenue?
Answer – Elastic
What is the numeric value for the elasticity of demand if a 2% price decrease leads to a 5% increase in the quantity demanded?
Answer = 5%/2% = 2.5 (in absolute values, else it will be -2.5)
2. Consider the demand schedule.
Price
Quantity demanded
10
15
8
50
6
70
4
85
2
95
What is the price elasticity of demand between $8 and $10.
Answer – Using the midpoint method
Ed = (?Q/?P) x (P1+P2 / Q1+Q2)
Price
Quantity demanded
10
15
8
50
Ed = (?Q/?P) x (P1+P2 / Q1+Q2)
Ed = (-35/2) x (10+8 / 15+50) = -4.85 or 4.85
What is the elasticity of demand between $2 and $4
Price
Quantity demanded
4
85
2
95
Ed = (?Q/?P) x (P1+P2 / Q1+Q2)
Ed = (-10/2) x (4+2 / 85+95) = -0.17 or 0.17
As price decreases, demand becomes less elastic.
What is the total revenue per month at a price of $10?
Answer – TR = Quantity demand x Price = 15x10 = $150
A reduction in price from $10 to $8 causes total revenue rise because the demand is elastic.
3. Price elasticity of demand would be larger (Elastic) for a luxury than for a necessity.
Elasticity of demand would be larger (Elastic) in the long run than in the short run.
Elasticity of demand increases (more elastic) when substitutes become available.
Elasticity of demand would be smaller (Inelastic) for table salt than for paper towels.
4. If income elasticity is positive, then an increase in income would cause rightward (increase) shift of demand curve.
This product is a normal good.
If at a constant price, an increase in the consumer increase from $10,000 to $12,000 caused an increase in the demand form 100 units to 150 units, then numeric value for the income elasticity is
Income elasticity = (?Q/?I) x (I / Q)
Income elasticity = (-50/-2000) x (10000 / 100) = 2.5
Price
Quantity demanded
10
15
8
50
6
70
4
85
2
95
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