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    Problem Set 2

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    Saad Hassan
    This document contains a problem set on microeconomics concepts including price elasticity of demand, total revenue, cross elasticity, income elasticity, and types of demand curves. It includes 7 questions with subparts analyzing real-world examples and calculations related to the demand for computer chips, telephone calls, and demand curves. The problem set provides data on price, quantity demanded, total revenue and asks students to calculate elasticities and determine elastic or inelastic demand based on the results.

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    Problem Set 2

    Uploaded by

    Saad Hassan
    118 views2 pages
    This document contains a problem set on microeconomics concepts including price elasticity of demand, total revenue, cross elasticity, income elasticity, and types of demand curves. It includes 7 questions with subparts analyzing real-world examples and calculations related to the demand for computer chips, telephone calls, and demand curves. The problem set provides data on price, quantity demanded, total revenue and asks students to calculate elasticities and determine elastic or inelastic demand based on the results.

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    This document contains a problem set on microeconomics concepts including price elasticity of demand, total revenue, cross elasticity, income elasticity, and types of demand curves. It includes 7 questions with subparts analyzing real-world examples and calculations related to the demand for computer chips, telephone calls, and demand curves. The problem set provides data on price, quantity demanded, total revenue and asks students to calculate elasticities and determine elastic or inelastic demand based on the results.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    118 views2 pages

    Problem Set 2

    Uploaded by

    Saad Hassan
    This document contains a problem set on microeconomics concepts including price elasticity of demand, total revenue, cross elasticity, income elasticity, and types of demand curves. It includes 7 questions with subparts analyzing real-world examples and calculations related to the demand for computer chips, telephone calls, and demand curves. The problem set provides data on price, quantity demanded, total revenue and asks students to calculate elasticities and determine elastic or inelastic demand based on the results.

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    © All Rights Reserved
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    Introduction to Microeconomics

    Problem Set # 2

    Q1.a) The initial price of a chip is $410 and at this price the number of chips sold per year equal 6 million.
    However, when the price of a chip falls to $390 the quantity demanded increased to 44 million chips a year.
    Using this information calculate the price elasticity of demand.

    b) If the price falls from $500 a chip to $300 a chip and the quantity demanded rises from 0 to 80 million
    chips per year respectively, what is the price elasticity of demand?

    Q2) You have been hired as an economic consultant by Intel and given the following world demand
    schedule for Intel chips:

    Price Quantity Demanded


    ($s per chip) (millions of chips per year)
    100 60
    200 50
    300 40
    400 30
    500 20

    Your advice is needed on the following questions:


    a) What will happen to Intel’s total revenue if the price of a chip falls from $400 to $300?
    b) What will happen to lntel’s total revenue if the price of a chip falls from $300 to $200?
    c) What is he price at which Intel’s total revenue is maximized?
    d) At an average price of $4000, is the demand for chips elastic or inelastic? Use the total revenue
    test and your answer to part a) to answer this question.
    e) At an average price of $300, is the demand for chips elastic or inelastic? Use the total revenue
    test and your answer to part b) to answer this question.
    f) What is the elasticity of demand for chips at the price that maximizes Intel’s total revenue?

    Q3) The following table gives some data on the demand for long-distance telephone calls:

    Price Qd in the Short-Run Qd in the Long-Run


    (cents/minutes) (millions of minutes/day) (millions of minutes/day)
    10 700 1000
    20 500 500
    30 300 0

    At a price of 20 cents a minute:


    a) Calculate the elasticity of short-run demand.
    b) Calculate the elasticity of long-run demand.
    c) Is the demand more elastic in the short-run or the long-run?

    Page 1
    Use the same information and calculate whether the total expenditure on calls increase or decrease as
    the price of a call falls from 20 to 10 cents a minute in:
    d) The short-run
    e) The long-run

    Q4) The following table gives some data on the supply of long-distance phone calls:

    Price Qs in the Short-Run Qd in the Long-Run


    (cents/minutes) (millions of minutes/day) (millions of minutes/day)
    10 300 0
    20 500 500
    30 700 1000

    At 20 cents a minute, calculate the elasticity of:


    a) Short-run supply
    b) Long-run supply

    Q5) State the sign (positive (+) or negative (-)) of the following elasticities:
    a) The cross elasticity of demand for ice-cream with respect to the price of frozen yogurt.
    b) The cross elasticity of demand for corn ready to be popped with respect to the price of popcorn
    machines.
    c) The income elasticity of demand for Caribbean cruises.
    d) The income elasticity of demand for tooth paste.

    Q6a) If the quantity demanded remains constant when price changes, then the price elasticity of
    demand is __________ and the demand curve is said to be ___________.
    b) If the %age change in quantity demanded equals the %age change in price then the price elasticity
    equals __________ and the demand is said to be _________.
    c) If the %age change in quantity demanded is less than the %age change in price then the price
    elasticity equals __________ and the demand is said to be _________.
    d) If the quantity demanded changes by an infinitely large %age in response to a tiny price change,
    then the price elasticity of demand is __________ and the demand curve is said to be
    ____________.
    e) When the %age change in quantity demanded exceeds the %age change in price, the price
    elasticity is _____________and demand is said to be ____________.

    Q7) Draw the following demand curves:


    a) Perfectly Inelastic
    b) Unit Elastic
    c) Perfectly Elastic

    Page 2

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