Question

1. For each of the following situations state whether the good is elastic, inelastic, unitary elastic, perfectly inelastic, or unable to determine and state which one of the elasticity rules (not generalizations) you used to make your determination.
   1. When the price of Reese Peanut Butter Cups falls by 30% Stacey increases her Reese buying by 30%.
   2. Connor decreased the price of soda at his convenience store causing the quantity of soda sold to rise giving him 10% more in revenue.
   3. When the price of Cardinal tickets rises by 20% Michael reduces the number of games he buys tickets to by 25%
   4. At the annual Hollister half off sale, Jessica buys three times as much as she usually would.
   5. Megan runs an ice cream store when she raised her prices she lost a lot of customers.
   6. When the price of hot dogs goes up by 25% James reduces the number of hot dogs he will purchase by 10%

Answer 1

1 - It is unitary elastic demand because % change in price is equal to % change in demand

2- Demand is elastic because there is inverse relationship between price and TR here. Quantity must have risen more than fall in price to give a rise in TR.

3 - Demand is elastic in nature because % change in quantity demanded is more than % change in price

4 - Demand is elastic in nature. This is because buying 3 times more means quantity demanded has risen by 300 % , and sale means reduction in price. Thus demand will be elastic here.

5 - Here , it has not been given if demand has dropped more than price rise or less. Lot of customers specifies just inverse relation. Hence elasticity cannot be determined.

6 - Demand is inelastic in nature because percentage change in quantity demanded is less than percentage change in price.