Question

1.

Adusei Incorporated reduces the price of their widgets from $25 to $18 and as a result, the quantity sold increases from 500 units a day to 650. The elasticity of demand for this company's widgets is:

2.

The price of gas increases by 14% and as a result, gas sales fall by 3%.

2.1.  

What is the elasticity of demand for gas at this point? **Round to 2 digits behind the decimal.

The price of gas increases by 14% and as a result, gas sales fall by 3%.

2.2.  

Based on your calculation from the previous question, demand for gas, at this point, is:

A.  perfectly inelastic

B.  very inelastic, but not perfectly inelastic

C.  unitary elastic

D.  slightly elastic

The price of gas increases by 14% and as a result, gas sales fall by 3%.

	2.3.	Government considers putting a 10 cent tax on gasoline at this point,which raises price even more. The revenues from gas sales, at this point, will:
		4. If demand for good M is ELASTIC, we know that a 5% change in price will result in less than a 5% change in quantity demanded. T/F

Answer 1

1.

Q1	Q2	Average	Q2-Q1	% change in Q	P1	P2	Average	P2-P1	change in P	Ep
500	650	575	150	26.08695652	25	18	21.5	-7	-32.5581395	-0.801242236

The elasticity is -0.8012

2.
Ep=% change in quantity demanded/% change in price
Ep=3/14
Ep=0.214

3.
The answer is B. very inelastic, but not perfectly inelastic
Since the elasticity is less than one but not 0, it is . very inelastic, but not perfectly inelastic.

4.
Since the elasticity is very low, a tax would increase the price, this in turn would increase the total revenue.