The South Beach Cafe recently reduced appetizer prices from $12 to $10 for afternoon "early bird" customers and enjoyed a resulting increase in sales from 90 to 150 orders per day. Beverage sales also increased from 300 to 600 units per day.

A. Calculate the arc price elasticity of demand for appetizers.

B. Calculate the arc cross-price elasticity of demand between beverage sales and appetizer prices.

C. Holding all else equal, would you expect an additional appetizer price decrease to $8 to cause both appetizer and beverage revenues to rise? Explain.

Solution Preview

Price elasticity of demand is defined to be

Price Elasticity = (% Change in Quantity) / (% Change in Price)

In this case the price changed from $12 to $10. So the change is $2. Depending on how you define percentage change the numbers we get will be different. I will use the following formula:

% Change = (New Value - Old Value) / (Average of ...

Suppose the price of apples rises from $3 a pound to $3.45 and your consumption of apples drops from 30 pounds of apples a month to 21 pounds of apples. Calculate your priceelasticity of demand of apples. What can you say about your priceelasticity of demand of apples? Is it elastic, inelastic, or unitary elastic?

Quantity PriceElasticityDemanded
100 $ 5
80 $10
60 $15
40 $20
20 $25
10 $30
1. Determine the priceelasticity of demand at each quantity demanded using the formula % chg in QD divided by % chg in price.
2. Redo #1 using price changes of $

1. A market consists of two individuals. Their demand equations are Q1 = 16-4P and Q2 = 20-2P respectively.
a. What is the market demand equation?
b. At a price of $2, what is the point priceelasticity for each person and for the market?

Consider a service that you buy frequently. (Can use pedicure 2 times per month at $50 for graph and calculation)
a. Suppose that the price was 5% lower and all other factors do not change. How much more would you buy each year?
b. Using this information, calculate the own-priceelasticity of your demand.

Price rises from $10 to $15, and the quantity demanded falls from 100 units to 60 units. What is the coefficient of the priceelasticity of demand between the two prices?
A) 1.25
B) 0.80
C) 0.60
D) 1.00

The price of a firm's product increases from $5 to $6. As a result, the quantity demanded of the product declines from 600,000 to 500,000. The priceelasticity of demand for the good is equal to (Use the arc priceelasticity of demand).

Details: Suppose you are a painter, and the price of a gallon of paint increases from $3.00 a gallon to $3.50 a gallon. Your usage of paint drops from 35 gallons a month to 20 gallons a month. Perform the following:
1.Compute the priceelasticity of demand for paint and show your calculations.
2.Decide whether the demand for p

Where Q=number of lunches served and P=price n cents. Compute the point elasticity of demand for school lunches at a price of 40 cents per lunch.
a = -1.78
b= -.078
c = -262.7
d = 1.78

1. A rise in the price of a certain commodity from $15 to $20 reduces quantity demanded from 20,000 to 5,000 units. Calculate the own-priceelasticity of demand and state whether the demand for this product is elastic or inelastic. If each nit costs $10 to produce, was this a wise move for the company's profit position? Why?