Question

When Vincent’s Produce increases the price of strawberries from $4.75/pound to $5.25/pound, he finds that sales drop from 330 pounds/week to 310 pounds/week.

Calculate the price elasticity of demand for Vincent’s strawberries.

Is demand elastic, inelastic or unit elastic?

Did Vincent’s revenue from strawberry sales increase, decrease or stay the same?

Med rents surfboards on the big island of Hawaii. He’s been charging $10/hour and averages 32 rentals an hour. When he lowered the rate to $9.50/hour the average hourly rentals increased to 36.

Calculate the price elasticity of demand for Med’s surfboard rentals.

Is demand elastic, inelastic or unit elastic?

Did Med’s revenue from surfboard rentals increase, decrease or stay the same?

Answer #1

1. Price Ed = P/Q x Change in Q/Change in P

P = 4.75, P' = 5.25, Q = 330 and Q' = 310

Price Ed = 4.75/330 x (310 - 330)/(5.25 - 4.75) = 4.75/330 x -
20/0.50 = - 95/165 = - **0.576**

Demand is **inelastic** because Ed < 1

When demand is inelastic and price increases then **TR of
firm increases**.

2. P = 10, P' = 9.50, Q = 32 and Q' = 36

Price Ed = 10/32 x (36 - 32)/(9.50 - 10) = 10/32 x 4/(- 0.50) =
**- 2.5**

Ed > 1 i.e. **Elastic demand**.

When demand is elastic and price decreases then **TR
increases**.

Budweiser has decided to decrease the price of a 6 pack of beer
from $9.50 to $8.25 as a result of the price decrease demand has
increased from 240,000 6 packs per week to 268,000 6 packs per
week. Should they decrease their price, what is the Ed coefficient,
is the demand elastic, inelastic, or unit elastic? What happened to
the total revenue? As the economist for Budweiser do you recommend
this move, why or why not?

1. when decreasing the price of diapers from $10 to $8
dollars total revenue Increases. demand price is inelastic, unit
elastic or elastic?
2. when decreasing the price of diapers from $4 to $3
total revenue Decrease demand price is unit elastic, inelastic, or
elastic?
3. The business would want to know the profit
maximizing price at this price, demand price is inelastic, unit
elastic or elastic?

Determine the price elasticity of demand, the cross-price
elasticity of demand or the income elasticity in the following
scenarios.
a. Consider the market for coffee. Suppose the price rises from
$4 to $6 and quantity demanded falls from 120 to 80. What is price
elasticity of demand? Is coffee elastic or inelastic?
b. John’s income rises from $20,000 to $22,000 and the quantity
of hamburger he buys each week falls from 2 pounds to 1 pound. What
is his income...

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this information, please answer the following questions.
Question 14: What is the demand function for peanut
butter? To answer this question, please solve for
parameters a and
b in P= a-
bQD.
Question 15: Denote the elasticity of peanut butter
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1-As we move up the demand curve, the price elasticity of demand
* A) increases B) decreases C) becomes unitary D) does not
change
2-If the price of lemonade increases relative to the price of
grape juice, the demand for: * A) grape juice will decrease. B)
grape juice will increase. C) lemonade will decrease. D) lemonade
will increase.
3-An increase in price will result in no change in total revenue
if: * A) the percentage change in price is...

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