List the five factors that make demand for a goodmore or less elastic.

November 24, 2016

Problem3 Determinants ofelasticity

List the five factors that make demand for a goodmore or less elastic. Give an exampleforeach(preferablyoneIdidn’ttalkaboutinclass).

1.

2.

3.

4.

5.

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Problem4 Elasticity #1

a. Ifyourincomerisesby20%andyoudecidetoincreaseyourpurchasesofclothing by15%, what is your income elasticity of demand for clothing? Is clothing a normal or inferiorgood?

• If income rises by1%, by what percentage will the demand for gadgets fall orrise?

• If income falls by10%, by what percentage will the demand for gadgetsfall orrise?

• If the price of gadgets rises by1%, by what percentage will the demand for widgetsfallorrise?

• If the price of gadgets falls by3%, by what percentage will the demand for widgetsfallorrise?

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Problem5 Elasticity#2

1. If price elasticity of demand is 1.25, and price rises from \$8 to \$12, bywhat percentage will quantity demanded fall?

2. Ifincomeelasticityofdemandis-0.75,andincomesfallfrom\$52,500to\$51,000 per capita (per person), then by what percentage will quantity demandedfall orrise?

3. Supposeyou’recurrentlysellingslicesofpizzafor\$3each,andthepriceelastic- ityof demand for pizza is 3. By what amount (in dollars and/or cents) would youhavetoreduceyourpricepersliceinordertoincreasenumberofslicesyousell by15%?

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Problem6 RelatedGoods

1. Ifthepriceoflasereyesurgeryfallsby50percentandthequantityofcontact lensesdemandedfallsby25percent,findthecrosspriceelasticityofdemand forthesetwogoods.

2. Arelasereyesurgeryandcontactlensessubstitutesorcomplements?

3. Suppose the price of laser eyesurgery falls from \$3,000 to \$2,500. By what percentagewillsalesofcontactlensesfalls?

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Problem7 Comparingdemands

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Problem8 Perfection#1

Drawaperfectlyinelasticdemandcurve.

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Problem9 Elasticity andprices

Hint: draw graphsforthese

1. If the demand for a goodis perfectly elastic and its price is \$15, howmuchwoulditspricebeifitssupplydoubled?

2. If the demand for a goodis perfectly inelastic and its price is \$50, howmuchwoulditspricebeifitssupplydoubled?

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Problem10 Perfection#2

1. Thedemandforaproductisperfectlyinelasticandthesupplyoftheproductis perfectlyelastic.Ifitsequilibriumpriceis\$10,drawagraphrepresentingthis market.

2. Onthesamegraph,showanewequilibriumpriceof\$20.

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Problem11 Perfection#3

1. Thesupplyofaproductisperfectlyinelasticandthedemandfortheproductis perfectlyelastic.Ifitsequilibriumpriceis\$50,drawagraphrepresentingthis market.

2. Onthesamegraph,showanewequilibriumpriceof\$25.

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Problem 12 Predictingthe priceof oil