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6-142
18. Using the demand data given, complete the following table by computing total revenue at each of the
prices. Indicate whether demand is elastic, inelastic, or unitary between each set of prices.
Price
Quantity
demanded
Total
revenue
Character of
demand
$1000
300
$_____
__________
900
400
_____
__________
800
500
_____
__________
700
600
_____
__________
600
700
_____
__________
500
800
_____
__________
400
900
_____
__________
300
1000
_____
__________
200
1100
_____
__________
100
1200
_____
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Price
Quantity
demanded
Total
revenue
Character of
demand
$1000
300
$300,000
elastic
900
400
360,000
elastic
800
500
400,000
elastic
700
600
420,000
unitary
600
700
420,000
inelastic
500
800
400,000
inelastic
400
900
360,000
inelastic
300
1000
300,000
inelastic
200
1100
220,000
inelastic
100
1200
120,000
19. Use the data from the table in the previous question and the two graphs below for this problem. On the first
graph: (a) plot the demand curve; and (b) indicate the elastic, unitary, and inelastic portions of the demand
curve. On the second graph: (a) plot the total revenue on the vertical axis and the quantity demanded on
the horizontal axis; (b) indicate the elastic, unitary, and inelastic portions of the demand and total revenue
curves. (Note: The scale for quantity demanded that you plot on horizontal axis of each graph should be
the same on both graphs.)
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20. Based on the determinants of elasticity as discussed in the text, explain what the price elasticity of demand
of the following products would be: (a) ballpoint pens; (b) Crest toothpaste; (c) diamond rings; (d) sugar;
and (e) refrigerators.
(a) Ballpoint pens: Demand should be slightly elastic because there are substitutes, and they are not a
21. Based on the determinants of elasticity as discussed in the text, compare the price elasticity for each set of
goods: (a) soda pop and Pepsi; (b) tooth brushes and cookies; (c) rent today and rent in the future; (d) an
oven and diamond bracelet.
(a) Demand for soda-pop is more inelastic than Pepsi. The broadly defined soda-pop has fewer substitutes
than the narrowly defined Pepsi. If the price of Pepsi increases consumers can purchase Coke or
22. Explain how each of four different factors can affect the price elasticity of demand. Give an example for
each determinant.
First, the price elasticity of demand can be affected by the number of substitutes. In general, the larger the
number of substitutes for a product, the greater will be the elasticity of demand. The price elasticity of
demand for beef tends to be relatively high because there are many possible substitute sources of protein
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23. Explain why the following situations would occur in terms of the factors that affect elasticity.
(a) Demand for cellular service is inelastic in the short run, but more elastic in the long run.
(b) Demand for a bakery’s bread is elastic, while demand for bread is inelastic.
(c) Demand for personal computers is elastic.
(a) This elasticity situation occurs because of the time factor. In the short run, cell phone users have
24. Which of the pair of goods would be considered to have more elastic demand? Why?
(a) Laundry detergent or Bounty brand paper towels
(b) Groceries or meals at a fancy restaurant
(c) A pack of gum or new couch
(d) An iPad today or an iPad two years from now.
(a) Laundry detergent or Bounty brand paper towels.
Bounty brand paper towels would experience more elastic demand. There is a greater number of
25. Federal and state governments often seek to raise tax revenue by levying excise or sales taxes on specific
products. What economic factors should be considered in determining the products that will raise the most
tax revenue? Give examples of products in your answer.
Government officials should consider taxing products for which the price elasticity of demand is inelastic.
Liquor, gasoline, and cigarettes are examples of goods with inelastic demand on which tax increases are
imposed to raise tax revenue. When a product has an inelastic demand, an increase in taxes will increase
26. Paper newspapers have an elasticity of demand of .10. Interpret this number and offer an explanation to
why the elasticity is so low.
Demand for paper newspapers is very inelastic. For a ten percent change in price, quantity demand for
paper newspapers will change by less than ten percent. Student responses to why may vary. Those who still
27. Explain the perspective that tougher enforcement of drug laws for cocaine or other drug laws may actually
increase the crime rate. Use the concepts of demand, supply, and elasticity in your explanation.
Tougher enforcement of drug laws reduces the supply of cocaine and other illegal drugs, thus driving up
the street price. The demand for cocaine and other drugs, however, appears to be highly inelastic. The
28. Discuss the pros and cons of legalizing drugs such as heroin or cocaine from an economic perspective using
the concepts of supply, demand, and elasticity.
The pro side for legalization looks at the price elasticity of demand for heroin and cocaine. This demand is
price-inelastic which means that if the price of these drugs was reduced, there would be less spent on them
by users. Legalization of these drugs will tend to increase the supply and reduce the price. The reduced
29. What is the price elasticity of supply? How is it measured?
Price elasticity of supply is a measure of the sensitivity of quantity supplied to changes in the price of a
product. The price elasticity of supply depends primarily on the ease of substitution of resources between
30. What is the main determinant of the price elasticity of supply? Explain.
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31. Why is there no total revenue test for elasticity of supply?
32. (Consider This) Describe the elasticity of supply for college education. What effect does this have on price
and quantity as demand for college increases?
33. Describe and give reasons for the characteristics of the elasticity of supply of a farm product that is sold at
a farmer’s market on a particular day.
34. Explain the difference between the immediate market period, the short run, and the long run as they relate
to price elasticity of supply.
35. Draw three supply and demand graphs that illustrate the effect of time on the elasticity of supply using the
below graphs. The three graphs should show: (a) the immediate market period; (b) the short run; and (c)
the long run.
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36. For each of the situations below use supply elasticity to explain the how the equilibrium price and quantity
change.
(a) The demand for collectable baseball cards from the 1950s increases.
(b) The demand for silver decreases.
(c) In the long run, the demand for ice cream increases.
(d) In the short run, the demand for gasoline decreases.
(a) The supply curve for baseball cards is relatively inelastic. These collectable cards can no longer be
(b) The supply curve for silver is inelastic. Silver production is costly and time-consuming and the amount
physically available is limited. A decrease in the demand for sliver will result in a decrease in the price
(c) In the long run the supply of ice cream is elastic. An increase in the demand for ice cream will shift the
demand curve in to the right. This will result in an increase in quantity and little to no change in price.
(d) In the short run the supply of gasoline is upward sloping. There are certain portions of a firm’s
business that cannot be changed. These include the fixed-sized plant, capital, and other fixed expenses.
A decrease in the demand for gasoline will shift the demand curve to the left. The price and quantity in
the market will decrease.
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of McGraw-Hill Education.
37. Using the supply data in the schedule below, complete the table by computing the price elasticity of supply
coefficients between each set of prices. Indicate whether supply is elastic, inelastic or unitary at each price.
Price
Quantity
supplied
Elasticity
coefficient
Character of
supply
$11
130
_____
_____
9
110
_____
_____
7
90
_____
_____
5
70
_____
_____
3
50
Price
Quantity
supplied
Elasticity
coefficient
Character of
supply
$11
130
0.83
inelastic
9
110
0.80
inelastic
7
90
0.76
inelastic
5
70
0.66
inelastic
3
50
38. Explain how the price elasticity of supply is related to the prices of antiques and gold.
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39. Why would it be valuable for a business to know the cross elasticity of demand for the two products it
produces: peanuts and popcorn?
The cross price elasticity of demand shows the responsiveness of the quantity demanded for one product to
a change in the price of another product. The business can use this concept to determine whether there is a
40. A computer company is considering lowering the price of its laptop computer to promote sales. However,
it worries that this will reduce desktop computer sales. It finds the cross product of demand to be 1.5. Are
its concerns legitimate? Explain.
41. Use the information in the table below to identify the type of cross elasticity relationship between products
X and Y in each of the following five cases, A to E.
Cases
Percent change
in price of Y
Percent change in
quantity demanded of X
Cross elasticity
type
A
5
7
__________
B
9
6
__________
C
5
−5
__________
D
3
0
__________
E
−2
10
__________
Cases
Percent change
in price of Y
Percent change in
quantity demanded of X
Cross elasticity
type
A
5
7
substitute
B
9
6
substitute
C
5
−5
complement
D
3
0
independent
E
−2
10
complement
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42. For the following three cases, use a midpoints formula to calculate the coefficient for the cross elasticity of
demand and identify the type of relationship between the two products.
(a) The quantity demanded for product A increases from 30 to 40 as the price of product B increases from
$0.10 to $0.20.
Coefficient: ______ Relationship: ________________
(b) The quantity demanded for product A decreases from 3000 to 1500 as the price of good B increases
from $5 to $10.
Coefficient: ______ Relationship: ________________
(c) The quantity demanded for product A remains 400 units as the price of product B increases from $25
to $30.
Coefficient: ______ Relationship: ________________
43. Would you expect the cross price elasticity to be positive or negative for the following set of goods?
a) Hot dogs and hot dog buns.
b) Gasoline and electric cars.
c) Coffee and tea
d) Beer and pretzels
44. Use the information in the table below to identify the income elasticity type of each of the following
products, A to E.
Product
Percent change
in income
Percent change in
quantity demanded
Income elasticity
type
A
9
12
__________
B
−6
6
__________
C
3
3
__________
D
6
−3
__________
E
2
1
__________
Product
Percent change
in income
Percent change in
quantity demanded
Income elasticity
type
A
9
12
normal
B
−6
6
inferior
C
3
3
normal
D
6
−3
inferior
E
2
1
normal
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45. You would think that if people’s income increased over time, then all industries in the economy should
benefit equally, but this is not the case. Explain why and give examples.
The explanation is based on the income elasticity of demand. Those industries in the economy for which
46. What is the practical significance of income elasticity coefficients? Explain the significance using as
examples an income elasticity of 3.0 for automobiles and an income elasticity of 0.20 for home-cooked
meals.
Income elasticity coefficients provide insights into the economy in terms of the impact of decreasing
47. (Last Word) Give three examples of how businesses or nonprofit institutions use elasticity of demand to
charge consumers different prices.
In the airline industry, business travelers have a relatively more inelastic demand than leisure travelers. So,
