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    Utility and Supply and Demand Elasticity

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    The exercises are about UTILITY and SUPPLY & DEMAND ELASTICITY.

    1.What does a demand for enrollment in a specific college look like? What is on the axes? Is the demand price-elastic? Income-elastic? How could you find out?
    3. How does total and marginal utility change as you spend more time surfing the Net?
    4. If the price of gasoline doubled, how would consumption of (a) gasoline, (b) cars and (c) public transportation be affected?
    7. Why are per capita advertising expenditures so high in the United States and so low in Brazil? (see world view, page 108).
    8. According to news stories on pages 95 and 96, how does the price the price elasticity of demand differ for teenagers and adults? Why?
    10. How has the Internet affected the price elasticity of demand for air travel? Use MS Excel software to complete a graph for question 10.

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    Solution Preview

    1. The demand curve for a specific college would be downward sloping, reflecting the decreasing number of students as the cost of tuition increases. The axes would be cost on the y axis and number of students on the x axis. The slope of the demand curve would reflect the price elasticity of demand. We can calculate the price elasticity of demand simply by calculating the slope (percent change price/percent change in number of students).

    Income elasticity of demand is the percentage change in quantity demanded divided by percentage change in income. Thus if income increases 10% and the number of people attending college increases by 10%, the income elasticity of demand is 20%/10% =2. This would be reflected as an outward shift in the demand curve for those with the higher incomes - more education would be purchased at all price levels. This is likely the case with college education, which is a luxury.

    3. When you spend a short amount of time on the Internet, you derive a lot from it. You do the searches that are most interesting to you. After some time, though, your searches are less beneficial. There ...

    Solution Summary

    Demonstration of the effects of utility and elasticity on the consumption of various goods.