EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 4, Problem 13SP
To determine
Determine whether the
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A news website reported (Feb. 17, 2020) that ridership of Karachi Metro Bus declined after a fare increase: “There were nearly four million fewer riders in December 2019, the first full month after the price of a token increased Rs. 25 to Rs.150, than in the previous December, a 4.3 percent decline.”
i) Use these data to estimate the price elasticity of demand for Karachi Metro Bus.
ii) According to your estimate, what happens to the Karachi Metro Bus’s revenue when the fare rises?
iii) Why might your estimate of the elasticity be unreliable?
Suppose you own a bookstore where you currently sell 23 Harry Potter adventure novels per day at a price of $39 per book. However, if you were to reduce the price to $28, then you would sell 31
Harry Potter adventure novels per day.
Using the midpoint formula, what is the price elasticity of demand for Harry Potter adventure novels?
(Hint: Be sure to include a minus sign, and enter a real number rounded to two decimal places.)
In this price range, the demand for Harry Potter adventure books is
Elasticity in the real world—sort of. The managers of a scholarly journal that I edit were thinking of raising the subscription prices. We used to charge individuals $32 for four issues per year and libraries $52 for the same. The managers proposed raising the prices to $45 and $75, respectively. My feeling was that these increases were too small, especially since the prices of substitutes (scholarly journals of a quality similar to ours) were much higher. I suggested that we charge $50 and $85, respectively. I believed that was more sensible, since the demand is quite inelastic over this price range, so with a larger price increase our total revenue would rise further. Apparently the managers agreed, and we raised our prices by the larger amount. Next year our revenue rose, suggesting that my guess about the elasticity of demand was correct.
Why do you think the journal charges different prices to libraries?
Do individuals have a higher or lower elasticity of demand than libraries?…
Chapter 4 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- Suppose a straight-line downward-sloping demand curve shifts rightward. Is the price elasticity of demand higher, lower, or the same between any two prices on the new (higher) demand curve than on the old (lower) demand curve?arrow_forwardEstimates presented in Exhibit 5 show that Android users have a higher price elasticity of demand for apps in the Google Play Store than do iPhone users in the Apple App Store. Why might Android users tend to be more sensitive to app prices than iPhone users? What categories or types of apps (for example, games/social media) do you think have the highest price elasticities?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forward
- Suppose Government of Pakistan wants to put a curb on public smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.5. If a pack of cigarettes currently costs Rs.200 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?arrow_forwardConsider the following passage from the article. According to studies cited by the American Cancer Society, the most surefire way to get people to quit, especially youths, is to raise prices. A 10 percent increase, for example, is followed by a 6.5 percent reduction in the number of cigarette-smoking youths and a 2 percent reduction of the habit in adults. According to the article: demand for cigarettes is elastic for both youths and adults demand for cigarettes is less elastic among youths than adults. demand for cigarettes is more elastic among youths than adults. demand for cigarettes is inelastic for both youths and adultsarrow_forwardSalina advertises her production of home workout supplies. Initially an exercise floor pad is sold for $25 per pad. At the price of $25, she sells 50 workout floor pads. Suppose Salina decides to increase the price of this product to $35. Sales fall to 40 pads. Assume the price elasticity of demand is 0.60 Is price elasticity of demand elastic or inelastic? Explain what it means for the price elasticity of demand to be elastic? Explain what it means for the price elasticity of demand to be inelastic? Based on the price elasticity of demand, without calculating the actual change in total revenue, what do you expect to happen to total revenue? Calculate total revenue at a price of $25. Calculate total revenue at a price of $35. Did total revenue increase or decrease?arrow_forward
- A marketing executive once said, “If the price elasticity of demand for your product is inelastic, then your price is probably too low.” What is this executive saying in terms of the economic principles discussed in this chapter?arrow_forwardSuppose a movie theater determines it can charge different prices to patrons who go to weekday matinees and people who attend evening and weekend shows. The movie theater's goal is to increase total revenue. See Hint The price elasticity of demand for weekend and evening patrons is -0.50, and the price elasticity of demand for matinee moviegoers is -2.80. Based on the price elasticity of demand for each group of people, how should the movie theater adjust its prices? Choose one: O A. Raise the price for matinee moviegoers, and keep the price the same for weekend and evening patrons. O B. Lower the price for matinee moviegoers, and raise the price for weekend and evening patrons. O C. Lower the price for matinee moviegoers, and keep the price the same for weekend and evening patrons. O D. Raise the price for matinee moviegoers, and lower the price for weekend and evening patrons.arrow_forwardThe following graph shows two known points (X and Y) on a demand curve for apples. 10 Y 2 Demand 1 10 20 30 40 50 60 70 80 90 100 0.03 QUANTITY (Thousands of pounds of apples) 0.05 0.63 1.6 According to the midpoint method, the price elasticity of demand for apples between point X and point Y is approximately which suggests that the demand for apples is between points X and Y. PRICE (Dollars per pound)arrow_forward
- Consider the markets for widgets and cogs. You study survey data and observe that if widgets cost $5, then 100 widgets are demanded. You also observe that if widgets cost $3, then 150 cogs are demanded and if widgets cost $4 then 100 cogs are demanded. Given the information, determine and explain which types of elasticity of demand you are able to calculate, and then calculate using the two types of methods to calculate elasticity of demand. After calculating, please interpret the calculations.arrow_forwardFollowing your review of elasticity, will the elasticity of demand for Nissan sedans increase, decrease, or remain the same when each of the following events occurs? Explain your answer. Other car manufacturers, such as Honda, decide to make and sell sedans. Sedans produced in foreign countries are banned from the European market. Following increased advertisements, Americans believe that sedans are less safe than ordinary passenger cars. In the long run, new sedan models are produced. Jordan usually pays a price between $14 and $20 per kilogram of sugar. His monthly total expenditure on sugar increases as the price decreases. What does this imply about her price elasticity of demand for sugar? Using the table below calculate the cross price elasticity skirts. Are these goods substitute or complement? Briefly explain. Price of Sandals Price of Skirts Quantity demanded of Sandals Quantity demanded of Skirts $5 $4 60 100 $4 $2 80 71arrow_forwardThe following graph shows two known points (X and Y) on a demand curve for oranges. PRICE (Dollars per pound) 10 9 8 7 6 + 3 2 1 0 0 Y 10 20 30 40 50 60 70 80 QUANTITY (Thousands of pounds of oranges) 90 X 100 Demand ? According to the midpoint method, the price elasticity of demand for oranges between point X and point Y is approximately the demand for oranges is between points X and Y. which suggests thatarrow_forward
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