Reading 13: Elasticity-LOS a 习题精选 2011, interpret, discuss, factors, demand

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Session 4: Economics: Microeconomic Analysis
Reading 13: Elasticity

LOS a: Calculate and interpret the elasticities of demand (price elasticity, cross elasticity, and income elasticity) and the elasticity of supply, and discuss the factors that influence each measure.

 

 

Assume that for the average consumer, the quantity demanded for gasoline increases from 15 gallons per week to 20 gallons per week response to a price decrease from $2.90 per gallon to $2.46 per gallon. Which of the following is closest to the price elasticity of demand for gasoline?

A) -1.74.

B) -1.65.

C) -1.86

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The percentage change in quantity demanded is (20 – 15) / [(20 + 15) / 2] = 28.57% and the percentage change in price is (2.46 - 2.90) / [(2.90 + 2.46) / 2] = -16.42%. Thus, price elasticity = 28.57% / -16.42% = -1.74.

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Assume that Rajesh Singh’s income increased from $20,000 per year to $30,000 per year, and his demand for “store-brand” bread decreased from 80 loaves to 40 loaves per year. Which of the following most accurately describes Singh’s income elasticity for store-brand bread?

A) Income elasticity is -1.67 and store-brand bread is an inferior good.

B) Income elasticity is -0.60 and store-brand bread is an inferior good.

C) Income elasticity is +1.00 and store-brand bread is a complimentary good.

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Average income is ($20,000 + $30,000) / 2 = $25,000, so the percentage change in income is ($30,000 – $20,000) / $25,000 = 40.00%. The average quantity of bread demanded is (80 + 40) / 2 = 60 loaves, so the percentage change in the quantity of bread demanded is (40 – 80) / 60 = -66.67%. Income elasticity of store-brand bread is -66.67 / 40 = -1.67. Since Singh’s income elasticity of demand is negative, store-brand bread is an inferior good.

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The percent change in demand for a good divided by the percent change in the price of another good is known as the:

A) income elasticity of demand.

B) price elasticity of demand.

C) cross elasticity of demand.

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If a 10% income increase caused a group of consumers to increase their purchases of television sets from 95 to 105, the group's income elasticity of demand for television sets would be closest to:

A) 1.00.

B) 0.10.

C) 2.00.

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Income elasticity is the sensitivity of demand to changes in consumer income.

Income elasticity = (percent change in quantity demanded) / (percent change in income) = [(105 ? 95) / (100)] / 0.10 = 1

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Price elasticity of demand is most accurately defined as the change in:

A) market price in response to a change in the quantity demanded.

B) quantity demanded in response to a change in income.

C) quantity demanded in response to a change in market price.

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George’s Appliance Center sells big screen televisions. On a representative model, when the price was reduced from $2,450 to $2,275, monthly demand increased from 175 to 211 units. What is the price elasticity of demand?

A) -1.69.

B) -2.53.

C) -2.14.

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Price elasticity of demand = % change in quantity demanded / % change in price

% change in quantity = (211 ? 175) / [(211 + 175)/2] = 0.187

% change in price = (2,275 ? 2,450) / [(2,275 + 2,450)/2] = -0.074

Price elasticity of demand = 0.187 / -0.074 = -2.53

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If the admission price for a rock concert is raised from $25 to $30 causing sales to drop from 60,000 to 40,000, the price elasticity of demand for tickets to the concert is:

A) 2.20.

B) -2.20.

C) -1.67.

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Price elasticity of demand is calculated by dividing the percent change in quantity demanded by the percent change in price, using the average value of the variable in the computations. The percent change in quantity demanded is (40,000 ? 60,000) / ((60,000 + 40,000) / 2) = -0.4. The percent change in price is (30 ? 25) / ((30 + 25) / 2) = 0.1818. The price elasticity of demand is -0.40 / 0.1818 = -2.2.

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Suppose the price of computers increases from $1,000 to $1,200. Assuming the original quantity demanded for computers was 50 million units, and the new quantity demanded is 45 million computers, what is the price elasticity of demand, and is the demand for computers elastic or inelastic?

A) 0.58, inelastic.

B) -1.73, elastic.

C) -0.58, inelastic.

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Price elasticity of demand is calculated by dividing the percent change in quantity demanded by the percent change in price, using the average value of the variable in the computations. The percent change in quantity demanded is (45 ? 50) / [(50 + 45) / 2] = ?5 / 47.5 = -0.105 or -10.5%. The percent change in price is = (1,200 ? 1,000) / [(1,000 + 1,200) / 2] = 200 / 1,100 = 0.1818 or 18.2% . The price elasticity of demand is -10.5 / 18.2 = -0.58.

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Antonio Conti consumes 2 pounds of beef per week when beef is $4.50 per pound and 3 pounds of chicken when chicken sells for $3.50 per pound. If the price of chicken increases to $4.00 per pound, Conti’s consumption of beef increases to 2.5 pounds per week. Which of the following most accurately describes Conti’s cross elasticity of demand for beef versus chicken? The cross elasticity of demand for:

A) beef relative to chicken is +1.67 and beef and chicken are substitutes.

B) beef relative to chicken is +1.67 and beef and chicken are complimentary goods.

C) chicken relative to beef is +1.75 and beef and chicken are substitutes.

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The average quantity of beef demanded is (2.0 + 2.5) / 2 = 2.25 pounds, so the percentage change in the quantity of beef demanded is (2.5 – 2.0) / 2.25 = +22.22%. The average price of chicken is ($3.50 + $4.00) / 2 = $3.75 per pound, so the percentage change in the price of chicken ($4.00 – $3.50) / $3.75 = +13.33%. The cross elasticity of demand for beef relative to the price of chicken is 22.2 / 13.3 = 1.67. Since the cross elasticity is positive, chicken and beef are substitutes for Conti.

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Assume that for the average consumer, the quantity demanded for jeans increases from 5 to 7 pairs per year in response to a price decrease from $29 to $24 per pair. The respective price elasticity and relative elasticity of demand for jeans is best described by which of the following?

A) ?1.77; relatively inelastic.

B) ?2.32; relatively elastic.

C) ?1.77; relatively elastic.

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The percentage change in quantity demanded is (7 ? 5) / [(7 + 5) / 2] = 33.33% and the percentage change in price is (24 ? 29) / [(24 + 29) / 2] = -18.87%. Thus, price elasticity = 33.33% / -18.87% = -1.77.

A good is considered to be elastic if the absolute value of price elasticity is greater than 1. In this case, the absolute value of the price elasticity of demand for jeans is 1.77, so the price elasticity for jeans is relatively elastic.