1. Rain spoils the strawberry crop. As a result, the price rises from $4 to $6 a

Question

1. Rain spoils the strawberry crop. As a result, the price rises from $4 to $6 a box and the quantity demanded decreases from 1000 to 600 boxes a week. Over the price range.
a. What is the price elasticity of demand?

b. Describe the demand for strawberries?

2. With higher fuel costs, airlines raise their fairs. The average fair rises from 75 cents per passenger mile to $1.25 per passenger mile. The number of passenger miles decrease from 2.5 million to 1.5 million a day. Over this price range.
a. What is the price elasticity of demand for air travel?

b. Describe the demand for air travel?

3. If the a 1 percent price cut leads to a 2 percent increase in the quantity sold and increasing total revenue, then the demand for that good is (elastic/inelastic/unit elastic).

4. If the a 1 percent price cut leads to a 1 percent increase in the quantity sold and increasing total revenue, then the demand for that good is (elastic/inelastic/unit elastic).

5. If the a 1 percent price cut leads to a 2/3 percent increase in the quantity sold and increasing total revenue, then the demand for that good is (elastic/inelastic/unit elastic).

Explanation / Answer

Price elasticity of demand is -400/(1000+600)/ 2/(4+6)= -1.25 Demand is elastic Price elasticity of demand is 10/(25+15)/ .50/(1.25+.75)= -1.0 Price elasticity of demand is unitary elastic. 3. elastic 4. unitary elastic (revenue will be the same) 5. inelastic (revenue will decrease)

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