Assume that Joe's Bakery sells 130 pies at a price of $9, 110 pies at a price of $10, and 95 pies at a price of $11.
a. Calculate the absolute value of the arc elasticity of demand if Joe raised the price of pies from $9 to $10. Is demand in this range elastic or inelastic?
b. Assume that Joe lowers his price from $11 to $9. What is the arc elasticity of demand?
Assume that real incomes fell during the 1990-1991 recession by 10 percent, and that the demand for Yugos increased by 15 percent. Can you determine an income elasticity measure?
Your book notes that the measure of the income elasticity for food is 0.51. Why do you suppose that the measure is inelastic for this good? Would you expect it to increase if looking at specific categories of food? Why or why not?
What are the major determinants of a product's price elasticity of demand? Studies indicate that the demand for Florida oranges, Bayer aspirin, watermelons, and airfares to Europe are elastic. Why?
Detroit mayor Kwame Kilpatrick proposed last year a 2 percent fast food tax in Detroit, with the stated purpose of trying to alter the incentive to eat fast food (as opposed to the purpose of raising revenue). Is his proposal, if passed, likely to be successful? Will it raise much revenue? Answer in terms of elasticity of demand.
(Note: the tax proposal was rejected by Detroit voters, so Kilpatrick then proposed a state law that would impose the tax. It is worded in such a way that would only apply to Detroit. Read more here.)
***
If the quantity demanded of a product rose from 900 to 1,200 when the price of the product fell from $11 to $9, the arc price elasticity of demand coefficient is equal to
a. -0.20.
b. -0.70.
c. -1.0.
d. -1.42.
The price of a product falls from $15 to $10, and as a result the quantity demanded increases from 240 to 300 units. We can conclude that over this range the price elasticity of demand for the product is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. equal to -0.4.
a. Calculate the absolute value of the arc elasticity of demand if Joe raised the price of pies from $9 to $10. Is demand in this range elastic or inelastic?
b. Assume that Joe lowers his price from $11 to $9. What is the arc elasticity of demand?
Assume that real incomes fell during the 1990-1991 recession by 10 percent, and that the demand for Yugos increased by 15 percent. Can you determine an income elasticity measure?
Your book notes that the measure of the income elasticity for food is 0.51. Why do you suppose that the measure is inelastic for this good? Would you expect it to increase if looking at specific categories of food? Why or why not?
What are the major determinants of a product's price elasticity of demand? Studies indicate that the demand for Florida oranges, Bayer aspirin, watermelons, and airfares to Europe are elastic. Why?
Detroit mayor Kwame Kilpatrick proposed last year a 2 percent fast food tax in Detroit, with the stated purpose of trying to alter the incentive to eat fast food (as opposed to the purpose of raising revenue). Is his proposal, if passed, likely to be successful? Will it raise much revenue? Answer in terms of elasticity of demand.
(Note: the tax proposal was rejected by Detroit voters, so Kilpatrick then proposed a state law that would impose the tax. It is worded in such a way that would only apply to Detroit. Read more here.)
***
If the quantity demanded of a product rose from 900 to 1,200 when the price of the product fell from $11 to $9, the arc price elasticity of demand coefficient is equal to
a. -0.20.
b. -0.70.
c. -1.0.
d. -1.42.
The price of a product falls from $15 to $10, and as a result the quantity demanded increases from 240 to 300 units. We can conclude that over this range the price elasticity of demand for the product is
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. equal to -0.4.
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