Choman
- From the data shown in the table below about demand for graphing calculators, calculate the price elasticity of demand from: point A to point B, point C to point D, and point F to point G. Classify the elasticity at each point as elastic, inelastic or unit elastic. Be sure to show your work!
Points | P | Q |
| A | 60 | 3,000 |
| B | 70 | 2,800 |
| C | 80 | 2,600 |
| D | 90 | 2,400 |
| E | 100 | 2,200 |
| F | 110 | 2,000 |
| G | 120 | 1,800 |
| H | 130 | 1,600 |
- From the data shown in the table below about supply of smoke detectors, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic. Be sure to show your work!
| Point | Price | Quantity Supplied |
| J | $8 | 50 |
| K | $9 | 70 |
| L | $10 | 80 |
| M | $11 | 88 |
| N | $12 | 95 |
| P | $13 | 100 |
- The federal government decides to require that automobile manufacturers install new anti-pollution equipment that costs $2,000 per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers? Explain.
- Suppose you are in charge of sales and pricing at your company and you want to earn as much profit as possible on a new product. If the elasticity of demand for your company’s product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answers.
- The average annual income rises from $25,000 to $38,000, and the quantity of bread consumed in a year by the average person falls from 30 loaves to 22 loaves. What is the income elasticity of bread consumption? Is bread a normal or an inferior good? Explain Show your computation.
- Suppose the cross-price elasticity of tea with respect to the price of coffee is 0.6, and the price of coffee falls by 5%. What will happen to the demand for apples? Show your work.
- If demand is inelastic, will shifts in supply have a larger effect on equilibrium price or on quantity? Explain.
- If supply is inelastic, will shifts in demand have a larger effect on equilibrium price or on quantity? Explain.
- What is the relationship between price elasticity and position on the demand curve? For example, as you move up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that?
- Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams for each of the following questions to show the shifts in the demand and/or supply curves, change in price, and change in quantity.
- What happens to the market for coffee beans?
- What happens to the market for a cup of coffee? What about total expenditures on cups of coffee?
- What happens to the market for donuts? What about total expenditures on donuts?
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