The price elasticity of demand .

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Chapter 6.2, Problem 2ST

To determine

The price elasticity of demand.

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Which of these products would demonstrate the most elasticity in a middle-income household? a. Fruit juice b. Toothpaste c. A dining room table d. A newspaper e. Brown bread

Refer to the Figure below. If the price of a hamburger increases from $8 to $10, the price Use the midpoint formula. elasticity of demand equals $ 4 10 8 6. E F 2 D 1 2 3 4 5 Number of hamburgers -3.0 -33 O -30 -0.33 Price 4.

Assume that you own a local brewery and that you sell 12 packs of your beer for $10 each. You hire a consultant to help you improve your business and she shows you that the price elasticity for your beer is 0.85. If your goal is to maximize your income/revenue, what should you do? 2. You run a hotel and you have determined that if you lower the price of your rooms 15% you will be able to rent 20% more rooms each month a.What is your price elasticity of demand for hotel rooms? b. If you want to maximize your revenue from renting out hotel rooms, what, if any changes should you make to the price? 3. Which product likely has a more in elastic demand, a movie ticket or lifesaving medication? Why? 4. If new substitutes are developed for a product, what will likely happen to the demand curve for that product? 5. If new substitutes are developed for a product, what will likely happen to the total revenue maximizing price for that product?