Chapter Questions
Explain why the choice between $1,2,3,4,5,6,7,$ and 8 "units," or $1000,2000,3000,4000,5000,6000,7000,$ and 8000 movie tickets, makes no difference in determining elasticity in Table $6.1 .$ LO1
Graph the accompanying demand data, and then use the midpoint formula for $E_{d}$ to determine price elasticity of demand for each of the four possible $1$ price changes. What can you conclude about the relationship between the slope of a curve and its elasticity? Explain in a nontechnical way why demand is elastic in the northwest segment of the demand curve and inelastic in the southeast segment. (FIGURE CAN'T COPY)
Calculate total-revenue data from the demand schedule in question $2 .$ Graph total revenue below your demand curve. Generalize about the relationship between price elasticity and total revenue.
How would the following changes in price affect total revenue? That is, would total revenue increase, decrease, or remain unchanged?a. Price falls and demand is inelastic.b. Price rises and demand is elastic.c. Price rises and supply is elastic.d. Price rises and supply is inelastic.e. Price rises and demand is inelastic.f. Price falls and demand is elastic.g. Price falls and demand is of unit elasticity.
What are the major determinants of price elasticity of demand? Use those determinants and your own reasoning in judging whether demand for each of the following products is probably elastic or inelastic: $(a)$ bottled water;(b) toothpaste; $(c)$ Crest toothpaste; $(d)$ ketchup; $(e)$ diamond bracelets; $(f)$ Microsoft Windows operating system.
What effect would a rule stating that university students must live in university dormitories have on the price elasticity of demand for dormitory space? What impact might this in turn have on room rates?
In November 1998 Vincent van Gogh's self-portrait sold at auction for $\$ 71.5$ million. Portray this sale in a demand and supply diagram and comment on the elasticity of supply. Comedian George Carlin once mused, "If a painting can be forged well enough to fool some experts, why is the original so valuable?" Provide an answer.
What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from $\$ 20$ to $\$ 22$ a box. In direct response, Goldsboro Farms supplies 1200 boxes of apples instead of 1000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro's supply. Is its supply elastic, or is it inelastic?
Suppose the cross elasticity of demand for products $A$ and $B$ is +3.6 and for products $C$ and $D$ is -5.4 What can you conclude about how products $A$ and $B$ are related? Products $\mathrm{C}$ and $\mathrm{D} ?$
The income elasticities of demand for movies, dental services, and clothing have been estimated to be $+3.4,+1,$ and $+.5,$ respectively. Interpret these coefficients. What does it mean if an income elasticity coefficient is negative?
Research has found that an increase in the price of beer would reduce the amount of marijuana consumed. Is cross elasticity of demand between the two products positive or negative? Are these products substitutes or complements? What might be the logic behind this relationship?
Refer to Table $6.5 .$ If the six people listed in the table are the only consumers in the market and the equilibrium price is $\$ 11$ (not the $\$ 8$ shown), how much consumer surplus will the market generate?
Refer to Table $6.6 .$ If the six people listed in the table are the only producers in the market and the equilibrium price is S6 (not the $\$ 8$ shown), how much producer surplus will the market generate?
Draw a supply and demand graph and identify the areas of consumer surplus and producer surplus. Given the demand curve, what impact will an increase in supply have on the amount of consumer surplus shown in your diagram? Explain why.
Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas?
LAST WORD What is the purpose of charging different groups of customers different prices? Supplement the three broad examples in the Last Word with two additional