 | Economics 14/e McConnell | |||||
|---|---|---|---|---|---|---|
| Online Learning Center |  | |||||
| Economics 14/e McConnell | |||||
|---|---|---|---|---|---|---|
| Online Learning Center | | |||||
20-2 Graph the accompanying demand data and then use the midpoint formula for Ed to determine price elasticity of demand for each of the four possible $1 price changes. What can you conclude about the relationship between the slope of the curve and its elasticity? Explain in a nontechnical way why demand is elastic in the northwest segment of the demand curve and inelastic in the southeast segment.
| Product price | Quantity demanded |
| $5 | 1 |
| 4 | 2 |
| 3 | 3 |
| 2 | 4 |
| 1 | 5 |
20-4 Calculate total-revenue data from the demand schedule in question 2. Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue.
20-5 How would the following changes in price affect total revenue – that is
would total revenue increase
decline
or remain unchanged?
20-6 What are the major determinants of price elasticity of demand? Use these determinants in judging whether demand for each of the following products is elastic or inelastic: (a) oranges; (b) cigarettes; (c) Winston cigarettes; (d) gasoline; (e) butter; (f) salt; (g) automobiles; (h) football games; (I) diamond bracelets; (j) this textbook.
20-10 In May 1990 Vincent van Gogh’s painting Portrait of Dr. Gachet sold at auction for $82.5 million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply.
20-12 Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and D is – 5.4. What can you conclude about how products A and B are related? Products C and D?
20-13 The income elasticities of demand for movies dental services and clothing have been estimated to be +3.4 +1.0 and + 0.5 respectively. Interpret these coefficients. What does it mean if an income elasticity is negative?
Answers:
| 20-2 See the graph accompanying the answer to 20-4. Elasticities top to bottom: 3; 1.4; .714; .333. Slope does not measure elasticity. This demand curve has a constant slope of 21 (5 21/1) but elasticity declines as we move down the curve. When the initial price is high and initial quantity is low a unit change in price is a low percentage change while a unit change in quantity is a high percentage change. The percentage change in quantity exceeds the percentage change in price making demand elastic. When the initial price is low and initial quantity is high a unit change in price is a high percentage change while a unit change in quantity is a low percentage change. The percentage change in quantity is less than the percentage change in price making demand inelastic.
|
 |
| 20-4 See the graph below. Total revenue data top to bottom: $5; $8; $9; $8; $5. When demand is elastic price and total revenue move in the opposite direction. When demand is inelastic price and total revenue move in the same direction.
|
|
| 20-5 Total revenue would increase in (c) (d) (e) and (f); decrease in (a) and (b); and remain the same in (g).
|
|
| 20-6 Substitutability proportion of income luxury versus necessity and time. Elastic: (a) (c) (e) (g) (h) and (i). Inelastic: (b) (d) (f) and (j).
|
|
| 20-10 Supply was perfectly inelastic -- vertical -- at a quantity of 1 unit. The $82.5 million price was determined where the demand curve intersected this supply curve.
|
|
| 20-12 A and B are substitutes; C and D are complements.
|
|
| 20-13 All are normal goods -- income and quantity demanded move in the same direction. These coefficients reveal that a 1 percent increase in income will increase the quantity of movies demanded by 3.4 percent of dental services by 1.0 percent and of clothing by 0.5 percent. A negative coefficient indicates an inferior good -- income and quantity demanded move in the opposite direction. |
|
MHHE Home | About MHHE | Help Desk | Legal Policies and Info | Order Info | What's New | Get Involved
