Microeconomics
2nd Edition
ISBN: 9780073375854
Author: B. Douglas Bernheim, Michael Whinston
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 2, Problem 3CP
To determine
Derive the formula for calculating
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For each demand function, find an expression for the price elasticity of demand. 1.D(p) = 6 – 3p 2.D(p) = (p + 2)-1 What is the price elasticity evaluated at p = 2? At that price, is demand elastic, unit elastic, or inelastic?.
A demand function is given by the equation Q = 112 – 3P.
Suppose the price is P = 15.
At this price, find the price elasticity of demand. USE THE POINT SLOPE METHOD to find this elasticity
Assume that in Country A, the average annual income of a typical person is $180,000. Annual consumption of black caviar is estimated at 4.5 kilos. The income elasticity of demand for black caviar is 1.25. What would average annual income have to be for consumption of black caviar to rise to 7.5 kilos?
Use the midpoint method in your calculations.
Chapter 2 Solutions
Microeconomics
Ch. 2 - Prob. 1DQCh. 2 - Prob. 2DQCh. 2 - Prob. 3DQCh. 2 - Prob. 4DQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6P
Ch. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Suppose the demand function for jelly beans in...Ch. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Suppose the annual demand function for the Honda...Ch. 2 - Prob. 13PCh. 2 - The demand function for a product is Qd = 100 ...Ch. 2 - Prob. 2CPCh. 2 - Prob. 3CPCh. 2 - Prob. 4CPCh. 2 - Suppose that the demand function for jelly beans...
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- What are the major determinants of a products price elasticity of demand? Studies indicate that the demand for Florida oranges, Bayer aspirin, watermelons, and airfares to Europe are elastic. Why?arrow_forwardUsing the following equation for the demand for a good or service, calculate the price elasticity of demand (using the point form), cross-price elasticity with good x and income elasticity. Q=82P+0.10I+Px Q is quantity demanded, P is the product price. P1 is the price of a related good, and I is income. Assume that P= $10, I = 100, and Px = 20.arrow_forwardSuppose a movie theater raises the price of popcorn 10 percent, but customers do not buy any less popcorn. What does this tell you about the price elasticity of demand? What will happen to total revenue as a result of the price increase?arrow_forward
- (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of Si per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Using the midpoint formula, show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in the price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?arrow_forwardA: Suppose the initial demand at the price of $10 was 100. When the price rises to $12, the demand drops to 30. Find the price elasticity of the demand. Is the demand elastic or inelastic in this price range? Will the revenue increase or decrease as the result of this price change? Justify your answer. B:. Using calculus, calculate the price elasticity of the following demand functions: D(p)=10-2ln(p) and D(p)=7p -3 . C: Suppose now that the demand is D(p)=12-3p. At what price is the revenue maximized? What is the maximum revenue? What is the price elasticity of demand at this price?arrow_forwardFor each demand function, find an expression for the price elasticity of demand. 1. D(p)=60−p2. D(p) = 40p^−23. D(p)=(p+2)^−1arrow_forward
- The demand function for leather laptop cases is Qd =100 − P1+0.75 P2+.0075 I . P1= price of leather cases , P2= price of carboncases, I = income. Where P1=10 , P2=20 , I =10,000 Compute for the cross price elasticity. What does your answer imply about the relationship between leather and carbon cases. Compute for the income elasticity of demand. What kind of good is leather laptop cases based from your answer.arrow_forwardSuppose the market demand for a product is given by this inverse demand equation P = 100 - 2Q^D. Furthermore, you know that initially 40 units are demanded in this market. Then, there is an increase in price by 50%. A. Calculate the price elasticity of demand as price increases by 50% from the initial level. (Use the midpoint method.) Interpret the figure you get for elasticity. B. Will the change in price increase or decrease the total revenue of the producers of this product? By how much? C. Graph and calculate the price effect and the quantity effect. Does this match your answer to part (B)?arrow_forwardPlease explain the answer.arrow_forward
- Suppose the demand function for smart phones is given by Q(P) = AP¹-a 1-a where A> 0 and a > 1. Use calculus to show that the price elasticity is equal to 1 — a everywhere along the whole curve. (Hint: Recall that if f(x) = x³, then ƒ'(x) = ßxß-¹). Interpret this result.arrow_forwardSuppose that a store decreases the price of laundry detergent from $4.10 to $3.50. As a result, quantity demanded increases from 210 to 230. a) Using the mid-point approach, calculate the percentage change in price. b) Using the mid-point elasticity approach, calculate price elasticity of demand. Your answer should be expressed in absolute value terms.arrow_forwardCalculate accurately Suppose 10 units of a good are sold when the price is $2 per unit, and 14 units are sold at a price of $1 per unit. Calculate the price elasticity of demand for this good over this price range using the midpoint formula. Does your answer suggest the demand is elastic or inelastic?arrow_forward
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