Use arc elasticity to find the price elasticity of demand, Microeconomics


a) The price of good X goes up by 2.75%, the quantity demanded of good Y goes from 10,500 units to 25,000.  What is the Exy?  What does that number mean?  What is the relationship between these two goods?

b) National incomes have gone from and average of $36,000 last year to $34,000 this year.  We see that the amount of widgets has changed from 102,500 last year to 105,000 this year.  What is the income elasticity of widgets?  What does this number mean? What type of good is a widget?

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c) Use Arc Elasticity To Find The Price Elasticity Of Demand.  What does this number mean? Is it in the elastic or inelastic range? What would happen to total revenue with the price reduction?

d)  Northern California Pro Bikes hired an economist to make predictions about the firm's sales and total revenue.  The economist found that the price elasticity of demand for Pro Bikes is 0.8.  Should the firm increase or decrease the price of Pro Bikes?  Why?

Posted Date: 3/7/2013 4:46:55 AM | Location : United States

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