PAGE 1 -- Elasticity
1a. Write the formula for price elasticity of demand, using the mid-point formula.
1b. Assume the elasticity of demand for beer = 0.5. What type of elasticity do consumers
exhibit for beer?
1c. Assuming the axes of price and quantity are denoted in equal unit measures, draw a
demand curve with approximates an elasticity of 0.5.
1d. Given a price elasticity of demand for beer of 0.5, if the price of beer increase by 10 percent
by what percent will the quantity demanded for beer change?
1e. Will the change in quantity demanded increase or decrease?
PAGE 2 - Foreign Currency Markets
2a--1. Depict the market for U.S. dollars and a market for Euros. Depict supply, demand,
equilibrium price and quantity with subscript "1" and the appropriate ratio for the price axis in
both markets.
2b. List the groups that are on the supply curve of U.S. Dollars
2c. List the groups that are on the demand curve for U.S. Dollars
2d. List the groups that are on the supply curve of Euros.
2e. List the groups that are on the demand curve for Euros.
2f. Assume Europeans who invest internationally are dismayed at President Trump's actions
to undermine the 75-year NATO Alliance between the United States and Western Europe. In
retaliation individual investors act to stop investing in U.S. equities and bonds. Show the
resultant effect in the two currency markets.