Chapter 6, Describing Supply and Demand: Elasticities Video Solutions, Economics

Problem 1

Determine the price elasticity of demand if, in response to an increase in price of 10 percent, quantity demanded decreases by 20 percent. Is demand elastic or inelastic?

Sandra Kudolo

Numerade Educator

01:31

A firm has just increased its price by 5 percent over last year's price, and it found that quantity sold remained the same.
a. What is its price elasticity of demand?
b. How would you calculate it?
c. What additional information would you search for before you did your calculation?

Alejandro Ruiz

Numerade Educator

01:53

Problem 3

When tolls on the Dulles Airport Greenway were reduced from $\$ 1.75$ to $\$ 1.00,$ traffic increased from 10,000 to 26,000 trips a day. Assuming all changes in quantity were due to the change in price, what is the price elasticity of demand for the Dulles Airport Greenway?

Anand Jangid

Numerade Educator

05:33

Problem 4

One football season Domino's Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its medium-size pizza by $\$ 1$ for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins weren't scoring many touchdowns. Much to the surprise of Domino's, in one week in $1999,$ the Redskins scored six touchdowns. (Maybe they like pizza.) Domino's pizzas were selling for $\$ 2$ a pie! The quantity of pizzas demanded soared the following week from 1 pie an hour to 100 pies an hour. What was price elasticity of demand for Domino's pizza?

Ethan Dee

Numerade Educator

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Problem 5

Which has greater elasticity: a supply curve that goes through the origin with slope of 1 or a supply curve that goes through the origin with slope of $4 ?$

Dimple Rikhabchand

Numerade Educator

01:39

Problem 6

Calculate the elasticity of the designated ranges of supply and demand curves on the following graph.

Carson Merrill

Numerade Educator

04:03

Problem 7

Which of the pairs of goods would you expect to have a greater price elasticity of demand?
a. Cars, transportation.
b. Housing, leisure travel.
c. Rubber during World War II, rubber during the entire 20th century.

Elizabeth Diaz-Clark

Numerade Educator

01:43

Problem 8

Economists have estimated the following transportation elasticities. For each pair, explain possible reasons why the elasticities differ.
a. Elasticity of demand for buses is 0.23 during peak hours and 0.42 during off-peak hours.
b. Elasticity of demand for buses is 0.7 in the short run and 1.5 in the long run.
c. Elasticity of demand for toll roads is 4.7 for low-income commuters and 0.63 for high-income commuters.

Erwin Antoni

Numerade Educator

02:49

Problem 9

Kean University Professor Henry Saffer and Bentley University Professor Dave Dhaval estimated that if the alcohol industry increased the prices of alcoholic beverages by 100 percent underage drinking would fall by 28 percent and underage binge drinking would fall by 51 percent.
a. What is the elasticity of demand of underage drinking and binge drinking?
b. What might explain the difference in elasticities?

Kaylee Mcclellan

Numerade Educator

03:57

Problem 10

A newspaper recently lowered its price from 50 cents to 30 cents. As it did, the number of newspapers sold increased from 240,000 to $280,000 .$
a. What was the newspaper's elasticity of demand?
b. Given that elasticity, did it make sense for the newspaper to lower its price?
c. What would your answer be if much of the firm's revenue came from advertising and the higher the circulation, the more it could charge for advertising?

Hrithvik Gadhiya

Numerade Educator

01:15

Problem 11

Once a book has been written, would an author facing an inelastic demand curve for the book prefer to raise or lower the book's price? Why?

Tristan Wille

Numerade Educator

11:36

Problem 12

University of Richmond Professor Erik Craft analyzed the states' pricing of vanity plates. He found that in California, where vanity plates cost $\$ 28.75,$ the elasticity of demand was $0.52 .$ In Massachusetts, where vanity plates cost $\$ 50,$ the elasticity of demand was 3.52.
a. Assuming vanity plates have zero production cost and his estimates are correct, was each state collecting the maximum revenue it could from vanity plates? Explain your reasoning.
b. What recommendation would you have for each state to maximize revenue?
c. If these estimates are correct, which state was most likely to be following a politically unsupportable policy?
d. Assuming the demand curves were linear, graphically demonstrate your reasoning in $a$ and $b$.

Noah Musser

Numerade Educator

01:46

Problem 13

How is elasticity related to the revenue from a sales $\operatorname{tax} ?$

Kaylee Mcclellan

Numerade Educator

03:36

Problem 14

Suppose average movie ticket prices are $\$ 8.50$ and attendance is 1.2 billion. The price of tickets rises to $\$ 9.50$ and attendance rises to 1.4 billion.
a. What happened to total revenue?
b. If you were to estimate elasticity from these figures, what would your estimate be?
c. What provisos would you offer about your estimate of elasticity?

Andrew Davis

Numerade Educator

05:20

Problem 15

Which of the following producers would you expect to support a tax on beer? Which would not? Explain your answer.
a. Producers of hard liquor. Cross-price elasticity with beer: -0.11
b. Producers of wine. Cross-price elasticity with beer: 0.23 .

Khalida Dawar

Numerade Educator

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Problem 16

For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers.
a. Vodka.
d. Perfume.
b. Table salt.
e. Beer.
c. Furniture.
f. Sugar.

Rashmi Sinha

Numerade Educator

02:36

Problem 17

For each of the following pairs of goods, state whether the cross-price elasticity is likely positive, negative, or zero. Explain your answers.
a. Lettuce, carrots.
b. Housing, furniture.
c. Nike sneakers, Puma sneakers.
d. Jeans, formal suits.

Prashant Bana

Numerade Educator

01:31

Problem 18

When the price of ketchup rises by 15 percent, the demand for hot dogs falls by 1 percent.
a. Calculate the cross-price elasticity of demand.
b. Are the goods complements or substitutes?
c. In the original scenario, what would have to happen to the demand for hot dogs for us to conclude that hot dogs and ketchup are substitutes?

Alejandro Ruiz

Numerade Educator

01:52

Problem 19

Calculate the income elasticities of demand for the following:
a. Income rises by 20 percent; demand rises by 10 percent.
b. Income rises from $\$ 30,000$ to $\$ 40,000 ;$ demand increases (at a constant price) from 16 to 19 .

Anand Jangid

Numerade Educator

02:22

Problem 20

Would you expect a shift in supply to have a greater effect on equilibrium quantity in the short run or in the long run? Explain your answer.

Daniel Cisneros

Numerade Educator

01:15

Problem 21

Would a shift in demand have a greater effect on the percentage change in equilibrium quantity for a straightline supply curve that intersects the quantity axis or the price axis?

Tristan Wille

Numerade Educator

09:25

Problem 22

For each of the following assume that the supply curve shifts while the demand curve remains constant. What is the direction of the supply shift and relative elasticity of demand?
a. Price remains nearly constant. Quantity increases enormously.
b. Price falls enormously. Quantity does not change.
c. Price rises slightly. Quantity remains nearly constant.

Ansh Varma

Numerade Educator