NOTE: Hi, please help me with these problems with proper explaination Thanks a.
ID: 1200205 • Letter: N
Question
NOTE: Hi, please help me with these problems with proper explaination Thanks
a. If a 10 percent increase in price decreases the quantity demanded by 12 percent, the price elasticity of demand is ____________.
b. The price of strawberries falls from $1.50 to $1.00 per carton and the quantity demanded goes from 100,000 to 200,000 cartons. Calculate the price elasticity of demand and interpret it in words.
c. At the present level of consumption, 4,000 movie tickets, and at the current price, $5 per ticket, the price elasticity of demand for movie tickets is 1. Calculate the percentage by which the owners of movie theaters must reduce price in order to sell 5,000 tickets.
d. The price elasticity of demand for ice-cream sandwiches is 1.2 at the current price of $0.50 per sandwich and the current consumption level of 100,000 sandwiches. Calculate the change in the quantity demanded when price rises by $0.05.
e. Calculate the price elasticity of supply for web-design services when the price per hour rises from $100 to $150 and the number of hours transacted increases from 300,000 to 500,000. Is supply elastic, inelastic, or unit-elastic?
Explanation / Answer
BEFORE GOING INTO CALCULATION LET US NOTE DOWN THE FORMU;A FOR ED
= %AGE CHANGE IN QUANTITY DEMANDED / % AGE CHANGE IN PRICE.
ALSO REMENBER THAT PRICE AND DEMAND HAVE INVERSE RELATIONSHIP.
A. 12 / 10 = 1.2
B. CHANGE IN QUANTITY IS ABOUT 100 % AND PRICE HAS FALLEN BY 33% SO ED = 100 / 33 = 3.03 OR 3 APPROX.
C. SINCE ELASTICITY IS 1 IT MEANS THAT THE PRICE AND QUANTITY ARE CHANGING IN THE SAME RATIO. SO SALE OF TICKETS HS CHANGED FROM 4000 TO 5000 A CHANGE OF 25%. HENCE THE PRICE SHOULD ALSO FALL BY THE SAME PERCENTAGE. SO 25% OF $5 WILL BE 1.25,
NEW PRICE WILL BE 5 - 1.25 = $3.75.
D. FOR EVERY CHANGE OF SAY 1 THE DEMAND INCREASERS BY 1.2. PRICE HAS INCREASED BY 10% SO DEMAND WILL FALL BY 12%
HENCE NEW QUANTITY WILL BE 100000 - (12% OF 100000) = 100000 - 12000 = 88000.
E.REMEMBER THAT SUPPLY AND PRICE HAVE DIRECT RELATIONSHIP.
CHANGE IN PRICE IS AROUND 50% INCREASE , AND CHANGE IN QUANTITY IS 67% INCREASE
HENCE ELASTICITY OF SUPPLY WILL BE WILL BE 67 / 50 = 1.34
SINCE IT MORE THAN ONE THE SUPPLY IS ELASTIC.
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