Question

1. For each of the following events, state the relevant elasticity concept. Then compute the measure of elasticity, using average prices and quantities in your calculations. In all cases, assume that these are ceteris paribus changes.   
   1. When the price of movie tickets is reduced from $14.00 to $11.00, ticket sales increase from 1200 to 1350.
   2. As average household income in Canada increases by 10 percent, annual sales of BMWs (car brand) increase from 56 000 to 67 000.
   3. After a major failure of Brazil’s coffee crop sent coffee prices up from $3.00 per kilogram to $4.80 per kilogram, sales of tea in Canada increased from 7500 kg per month to 8000 kg per month.
   4. An increase in the world demand for pulp (used in producing newsprint) increases the price by 14 percent. Annual Canadian production increases from 8 million tonnes to 11 million tonnes.
   5. Marta increases her purchases of organic fruits and vegetables from 40 kilos per year to 80 kilos per year as her income rises from $60 000 to $69 000 per year.
   6. When private school tuition fees increased from an average of $17 500 per year to $22 500 per year, schools recorded a drop in annual enrollment from 12 000 students to 8000 students.

Answer 1

Elasticity of demand is how much change in quantity demanded with respect to change in price or income.