Question

1. The owner of a health club asks you for advice about whether the
company should raise the price of its membership this year based on
the following information: last year the club raised the price of
its membership by 5% and the number of members paying the same fee
fell by 7%.

2. The Metropolitan Transit System recently announced a 50%
increase in the price of a transit ticket. The administrators said
that they needed an increase in revenue to cover their rising
costs. Explain the economic rationale for this decision.

3. The following data shows the relationship between price and
quantity demanded at four different prices for a product:

P = $11, Qd = 16

P = $9, Qd = 24

P = $7, Qd = 32

P = $5, Qd = 40

Using the midpoints formula, what is the price elasticity of demand
between: (a) $11 and $9; (b) $9 and $7; (c) $7 and $5?

4. The following is a straight-line demand curve that confronts a
single firm.

Quantity

Price demanded (3) (4)

$6 1 _____ _____

5 2 _____ _____

4 3 _____ _____

3 4 _____ _____

2 5 _____ _____

1 6 _____ _____

(a) In column 3, compute total revenue. In column 4, compute the
coefficient for the price elasticity of demand at each price using
the midpoints formula.

(b) Describe the character of elasticity across the prices based on
the total revenue test and the elasticity coefficient.

(c) Does a straight-line demand curve have constant
elasticity?

(d) Of what practical significance is your answer to (c)?

5. Using the supply data in the schedule shown below, complete the
table by computing the price elasticity of supply coefficients
between each set of prices. Indicate whether supply is elastic,
inelastic or unitary at each set of prices.

Quantity Elasticity Character

Price supplied coefficient of supply

$11 130 _________ _________

9 110 _________ _________

7 90 _________ _________

5 70 _________ _________

3 50 _________ _________

Answer #1

1. The concept to be used is Ed or elasticity of demand wrt price. It measures the responsiveness of change in quantity demanded wrt change in prices.

Ed= percentage change in quantity/ percentage change in price

= 7/5 = 1.4

Since ed is highly elastic as 1.4 exceeds unity, raising membership fee will result in loss of a higher percentage of members.

2. The economic rationale behind increasing the ticket price is that rising operating costs can result in losses until is no more viable to continue operations. The marginal revenue has to be increased in accordance with rising marginal costs to continue operations. So if input costs are rising, raising the ticket prices is crucial for continuing operations.

3.

. Fill in blanks in the table below for this demand equation ? =
10 − 1 2 ?? .
Answer the following questions based on your answer in the table
above:
a. Does a decrease in price necessarily increase total
revenue?
b. For what price the total revenue is maximum? What is the
price elasticity of demand for that price?
Price (P)
Quantity Demanded (QD)
Total Revenue
Price Elasticity of Demand Price
10
9
8
7
6
5
4...

The demand and supply for a good are respectively QD = 16 – 2P +
2I and QS = 2P – 4 with QD denoting the quantity demanded, QS the
quantity supplied, and P the price for the good. Suppose the
consumers’ income is I = 2. 6) Determine the price-elasticity of
demand if P = 2. 7) Determine the income-elasticity of demand if P
= 2. 8) Determine the price-elasticity of supply if P = 4. 9)
Determine consumers’...

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mid-point method. Please write out formulas and show your work.
1. Price Elasticity of Demand. Before: P=1, Qd = 4; After: P =3;
Qd =0.
2. Given your answer to #1, is this demand curve elastic or
inelastic over this range? Why?
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2. In a small college town, the demand for delivery pizza is
given by QD = 800 - 32P, where QD is the
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II-0. Suppose that your demand schedule for Movie is as
below.
Price
Quantity Demanded when income =$10,000
Quantity Demanded when income =$20,000
$5
50
60
$7
40
55
$9
30
50
$11
20
45
$13
10
40
Now the movie ticket price is $7 each. If the ticket price rises
to $9 each,
Calculate the price elasticity of demand using midpoint method
when your income is $10,000.
Step 1
How much is the change in quantity
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What is the...

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Following table shows information about the demand for apples in
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Price, P ($/lb) Quantity Qd (lbs)
10/0
8/4
6/8
4/12
2/16
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Quantity demanded (Qd) on the horizontal axis?
(b) Write the equation for this inverse demand function.
(c) What is the quantity demanded when P = $3/lb? Following
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questions.
If demand is :Qd = 800 - 5 P and supply is: Qs = 125
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Where: Qd = quantity of the good demanded.
Qs = quantity of the good supplied.
P = price of the good.
Part 1: The equilibrium price is ______
Part 2: The equilibrium quantity is _________
Part 3: An imposed price of 20.25 yields an excess
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Part 4: Assuming...

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(Use the Midpoint (Arc) method)
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Where: Qd = Quantity of the good demanded Qs = Quantity of the
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Part 1: The Equilibrium Price is:
Part 2: The Equilibrium Quantity is:
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a. How many Bars
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b. At what price
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QD = 10,000 -
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Q? What is the marginal revenue equation in terms of
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Qd = 240 - 5P
Qs = P
(a) Where Qd is the quantity demanded, Qs is the quantity
supplied and P is the Price. Find:
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(2) the Equilibrium quantity before the tax
(3) buyers reservation price
(4) sellers reservation price
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