Question

1. The demand equation for widgets is P=20-2QD, where P is the price of cookies in dollars and QD is the quantity demanded. Calculate the price elasticity of demand for cookies between QD₁=2 and QD₂=3.

2. Scalpers sell their tickets outside of theatres, sporting events and concerts. Demand for scalper tickets is usually quite high for sold-out events, as consumers have no other alternative if they want to purchase tickets.

Using demand and supply curves, show the change in equilibrium price and quantity for the following scenarios. Hint: Consider the elasticity of demand.

1. What happens to demand for scalper tickets as the start of the sold-out event nears?

2. What happens to demand for scalper tickets at an event that is not sold out, and has a small walk-up crowd.

3. Which of the following statements is true concerning comparative advantage? Explain your rational

1. Canada is relatively more efficient at producing lard
2. Canada is relatively more efficient at producing machetes
3. Zimbabwe is relatively more efficient at producing lard
4. Both b) and c) are correct

Answer 1

1. The demand equation for widgets is- P= 20-2Qd

When quantity is Qd1=2, price, P1= 20-2*2= 20-4=16

So, when Qd1= 2, P1=16

When quantity is Qd2=3, then price, P2= 20-2*3=20-6=14

So, when Qd2=3, P2=14

Now, we have two points on the demand curve, (Qd1,P2)=(2,16)& (Qd2,P2)=(3,14)

Price elasticity of demand= Percentage change in quantity demanded/Percentage change in price = = = ==