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    Microeconomics SPRING 2020 Elasticity: Elastic?

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    Charles D. Alexander Trapp
    1. The demand for golf balls is relatively inelastic because a large percentage increase in price (35%) led to a smaller percentage decrease in quantity demanded (42%). 2. The demand for education at Galen University is elastic because despite a large percentage increase in tuition (29%), enrollment increased (37%), indicating students are sensitive to price changes. 3. Price elasticity of demand measures consumers' responsiveness to price changes. Factors like availability of substitutes, percentage of income spent, and time period affect whether demand is elastic or inelastic.

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    Microeconomics SPRING 2020 Elasticity: Elastic?

    Uploaded by

    Charles D. Alexander Trapp
    65 views3 pages
    1. The demand for golf balls is relatively inelastic because a large percentage increase in price (35%) led to a smaller percentage decrease in quantity demanded (42%). 2. The demand for education at Galen University is elastic because despite a large percentage increase in tuition (29%), enrollment increased (37%), indicating students are sensitive to price changes. 3. Price elasticity of demand measures consumers' responsiveness to price changes. Factors like availability of substitutes, percentage of income spent, and time period affect whether demand is elastic or inelastic.

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    1. The demand for golf balls is relatively inelastic because a large percentage increase in price (35%) led to a smaller percentage decrease in quantity demanded (42%). 2. The demand for education at Galen University is elastic because despite a large percentage increase in tuition (29%), enrollment increased (37%), indicating students are sensitive to price changes. 3. Price elasticity of demand measures consumers' responsiveness to price changes. Factors like availability of substitutes, percentage of income spent, and time period affect whether demand is elastic or inelastic.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    65 views3 pages

    Microeconomics SPRING 2020 Elasticity: Elastic?

    Uploaded by

    Charles D. Alexander Trapp
    1. The demand for golf balls is relatively inelastic because a large percentage increase in price (35%) led to a smaller percentage decrease in quantity demanded (42%). 2. The demand for education at Galen University is elastic because despite a large percentage increase in tuition (29%), enrollment increased (37%), indicating students are sensitive to price changes. 3. Price elasticity of demand measures consumers' responsiveness to price changes. Factors like availability of substitutes, percentage of income spent, and time period affect whether demand is elastic or inelastic.

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    MICROECONOMICS

    SPRING 2020
    ELASTICITY

    1. If a 35 percent increase in price of golf balls led to a 42 percent decrease in quantity


    demanded, then is the demand for golf balls relatively elastic, relatively inelastic, or unit
    elastic?

    2. Suppose that (for arguments sake), facing stiff competition, Galen University, a small
    private university in Central Farm, Cayo District, decided two years ago to bolster its
    academic offerings, promising students at least three hands-on experiences outside the
    classroom, including research, internships and service projects. Even though it raised
    tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent.
    Adapted from: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game,
    Popularity Rises With the Price," New York Times, December 12, 2006

    Based on the above information, is the demand for Galen University education relatively
    elastic, relatively inelastic, or unit elastic?

    3. Sally’s Smoothies operates near a college campus. Sally has been selling 120 smoothies a
    day at $4.50 each and is considering a price cut. She estimates that he would be able to
    sell 200 gyros per day at $3.50 each.

    a. Calculate the price elasticity of demand using the midpoint formula.


    b. Calculate the change in revenue as a result of the price cut.

    4. List the five key determinants of price elasticity of demand and explain how each
    determinant indicates if demand tends to be elastic or inelastic.

    5. For each pair of items below determine which product would have the higher price elasticity
    of demand (in absolute value).
    a. Insulin for a diabetic or aspirin for someone suffering a headache.
    b. A new Whirlpool 27 cu.ft. side-by-side refrigerator or electricity to power your all-electric
    home.
    c. A can of Red Bull or soft drinks in general.
    6. The estimated price elasticities of demand for the products listed in the table as "Product
    A" are from Table 6-2 in the text. Indicate whether the products listed as "Product B" will
    have a more elastic or less elastic demand than the corresponding Product A.

    Is Estimated Elasticity for


    Estimated Product B More Elastic or
    Elasticity for Less Elastic than for
    Product A Product A Product B Product A?
    Presidente
    Beer -0.29 Pilsner Beer
    Organically
    Chicken -0.37 raised chicken
    Illegal
    Marijuana -0.28 narcotics
    Independence
    Cigarettes -0.25 Cigarettes
    Restaurant Hode’s
    meals -0.67 Restaurant

    7. Explain the relationship between price elasticity of demand and total revenue.

    8. Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were
    sold. Without calculating the price elasticity value, can you determine whether demand is
    elastic, unit elastic, or inelastic? Explain your answer.

    9. Explain the concepts of cross-price elasticity of demand and income elasticity of demand.
    What do positive and negative values indicate for each of these demand elasticities?

    10. Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity
    demanded of a good. Calculate the income elasticity of demand for the good and
    determine what type of good it is.
    11. Table 1

    Quantities Quantities
    Purchased Purchased
    Income Prices Good X Good Y
    $30,000 Px = $6, Py = $3 2 20
    50,000 Px = $6, Py = $4 5 10

    11. Refer to Table 1.


    a. Using the information in the table, calculate the income elasticity of demand for good X and
    characterize the good. Use the midpoint formula.
    b. Can you calculate the income elasticity of demand for good Y? If you can, show your
    calculation and characterize the good. If you cannot, explain why.

    12. Explain the economic concept of price elasticity of supply. How is price elasticity of
    supply calculated?

    13. Suppose the current price of copper is $3 per pound and the quantity supplied is 200
    pounds per day. If the price of copper falls to $2.50 per pound, the quantity supplied
    drops to 180 pounds per day. Use the midpoint formula to calculate the price elasticity of
    supply for copper.

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