T-Mobile Practicum Questions (3 10 30 points) 1. Suppose the price of widgets ri
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T-Mobile Practicum Questions (3 10 30 points) 1. Suppose the price of widgets rises from $7 to S9 and consumption of widgets falls from 25 widgets a month to 15 widgets. a. Compute the percentage change in quantity and the percentage change in price b. Compute the price elasticity of demand of widgets c. What can you say about your price elasticity of demand of widgets? Is it Elastic, Inelastic, or Unitary Elastic? d. Is it a sound plan for the firm to raise its price? 2. The quantity demanded of lobsters is 0,1,2,3,4,5, and 6. The derived total utility is 0, 15, 23, 25, 25, 22, and 12. Find a. The highest quantity of lobsters demanded. b. What is the marginal net utility (consumer surplus) when the market price is S 4.00 per lbs. c. Complete the table of the demand schedule and graph the demand curve d. What can you conclude about the graph and why? 3. The short- run price elasticity of demand for gasoline at the pump is currently 0.25. Suppose that due to international hostilities, the crude oil supplies is cut off, which results in a drop of 15 percent of US supplies of refined gasoline. Find: a. The new price after the cut off, when the current price is S 3.00 a gallon. b. What would happen if the US government imposes a price ceiling on gas at S 3.00 per gallon c. Under the price ceiling scenario, would the quantity demanded or quantity supplied determine how much gas is purchased d. Would it be the same without the price ceiling scenario (hint: would you answer in c be the same when there is no price ceiling policy)Explanation / Answer
1.
A.
Percentage change in price = (9-7)/7 = 28.57%
Percentage change in quantity = (15-25)/25 = - 40%
B.
Price elasticity of demand = % change in quantity demanded / % change in price
Price elasticity of demand = -40/28.57 = -1.4
C.
The demand of widget is relatively elastic in nature, because the value of elasticity of demand is more than 1 in absolute terms.
D.
No. Since the demand is elastic, then the % change in demand will be more than the % change in price.
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