# Basic elasticity concepts

Please refer attached file for graphs.

Problems :

1.It has been estimated that the price elasticity of demand for attending baseball games is .23. If price were the only factor to change, a rise in attendance of 10%, one could conclude that price of baseball tickets:

a.fell by 43.48%

b.rose by 43.48%

c.fell by 2.3%

d.rose by 2.3%

2.A 1997 Florida freeze reduced the quantity of vegetables sold by 20% and increased their retail price by 30%. One can conclude that:

a.demand had shifted out along a perfectly inelastic supply curve.

b.demand had shifted out along a perfectly elastic supply curve.

c.supply of vegetables had shifted in along an elastic demand curve.

d.supply of vegetables had shifted in along an inelastic demand curve.

3.Given the same price elasticity of supply, sellers would be able to pass along the largest portion of a 10% tax on which of the following items?

a.Beef, with a price elasticity of demand of |-0.62|.

b.Chicken, with a price elasticity of demand of |-0.32|.

c.Fish, with a price elasticity of demand of |-0.12|.

d.Pork, with a price elasticity of demand of |-0.73|.

4.As a manager, you have determined that the demand for your product is quite elastic. Therefore:

a.increasing the price of your good will increase revenues.

b.decreasing the price of your good will increase revenues.

c.increasing the price of your good will have no effect on revenues.

d.any change in your price will not impact revenues.

5.The more specifically or narrowly a good is defined

a.the fewer substitutes it has and therefore the more elastic the demand for that good is.

b.the fewer substitutes it has and therefore the less elastic the demand for that good is.

c.the more substitutes it has and therefore the more elastic the demand for that good is.

d.the more substitutes it has and therefore the less elastic the demand for that good is.

Use Figure 1 to answer question 6.

6.Use the following graph to answer question 3:

Which story below best describes the graph above?

a.Sock Market: The popularity of Birkenstocks makes wearing socks passé.

b.Labor market: World War II in Europe kills a large proportion of working-age men.

c.Fine jewelry market: The dramatic increase in stock market prices increases people's wealth making diamond bracelets more attractive.

d.Donut market: The popular Atkinson diet instructs people to stay away from foods high in carbohydrates such as bakery items.

7.The (inverse) supply and demand equations for Nantucket Nectar's Kiwi-berry juice are given by P = 0.8 + 0.2QS and P = 3 - (1/6)QD respectively, where price is dollars per quart and quantity is thousands of quarts. The equilibrium market price and quantity is:

a.P = $2, Q = 6 thousand quarts.

b.P = $3, Q = 6 thousand quarts.

c.P = $14, Q = 66 thousand quarts.

d.P = $22, Q = 106 thousand quarts.

8.The (inverse) supply and demand equations for Dead man's Hot Sauce are given by P = 1.0 + 0.5QS and P = 5.0 - 0.25QD respectively, where price is dollars per bottle and quantity is thousands of bottles. The equilibrium market price and quantity is:

a.P = $5.00, Q = 6 thousand bottles.

b.P = $2.50, Q = 10 thousand bottles.

c.P = $1.67, Q = 13 1/3 thousand bottles.

d.P = $1.00, Q = 16 thousand bottles.

9.From the demand equation for Dead man's Hot Sauce in question 9, the price elasticity of demand at a price of $4.00 is (use the point elasticity formula):

a.|-0.25|

b.|-1.0|

c.|-2.0|

d.|-4.0|

#### Solution Preview

Please refer attached file for graphs and better clarity of expressions.

Solution:

1.It has been estimated that the price elasticity of demand for attending baseball games is .23. If price were the only factor to change, a rise in attendance of 10%, one could conclude that price of baseball tickets:

a.fell by 43.48%

b.rose by 43.48%

c.fell by 2.3%

d.rose by 2.3%

Fall in price=Rise in attendance/price elasticity=10%/0.23=43.48%

Answer is a. Fell by 43.48%

2.A 1997 Florida freeze reduced the quantity of vegetables sold by 20% and increased their retail price by 30%. One can conclude that:

a.demand had shifted out along a perfectly inelastic supply curve.

b.demand had shifted out along a perfectly elastic supply curve.

c.supply of vegetables had shifted in along an elastic demand curve.

d.supply of vegetables had shifted in along an inelastic demand curve.

Elasticity of supply=20%/30%=0.67

Answer is d. supply of vegetables had shifted in along an inelastic demand curve.

3.Given the same price elasticity of supply, sellers would be able to pass along the largest portion of a 10% tax on which of the following items?

a.Beef, with a price elasticity of ...

#### Solution Summary

There are 9 short answer/MCQ type problems. Solutions explain the concepts of price elasticity of demand and supply. Working of solutions is shown where necessary.