Reference no: EM13215023
Instructions are as follows. Open a word processing program, such as MS WORD. Open a new document. Copy and paste this document into that new document. Insert
the answers in the spaces between the questions. Submit a copy before the time on the date due indicated on the Assignment Sheet using the Own Price Elasticities of Demand Problem Drop Box. It will not be possible to submit the homework after the drop box closes.
Note that the mid points variation of the arc own price elasticity of demand formula is as follows:
η = - [(Q1 - Q0) / (Q0 + Q1)] X [(P0 + P1) / (P1 - P0)] where (P0, Q0) and (P1, Q1) are two price - quantity demanded combinations.
Show all work.
1. The own price elasticity of demand for gasoline is estimated to be 0.6.
a. Classify the demand as elastic, inelastic or unit elastic.
b. Predict the percentage change in quantity demanded if price increases by 40%.
2. The own price elasticity of demand for sporting goods is estimated to be 2.4.
a. Classify the demand as elastic, inelastic or unit elastic.
b. Predict the percentage change in quantity demanded if price decreases by 15%.
3. The own price elasticity of demand for public transportation is estimated to be 0.4.
a. Classify the demand as elastic, inelastic or unit elastic.
b. Determine the percentage change in price required to increase the quantity demanded of public transportation by 12%.
4. Suppose that two price-quantity demanded combinations for some product are ($1.20, 90 units) and ($0.80, 110 units). Using the mid points variation of the arc own price elasticity of demand formula, calculate the coefficient of elasticity for both a price increase and a price decrease.
Calculation for a price increase
Calculation for a price decrease
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