SEE BLACKBOARD
Microeconomics
In class questions
1. Is demand Elastic or Inelastic?
a. "People aren’t going to buy much more of our product no matter how far we cut the price."
b. "This is a tough business. We would lose half our customers if we raised our prices as little as 2%."
c. The demand for salt.
d. The demand for Morton’s salt at the Kroger.
2. Why do NFL ($50) games cost so much more that Major League Baseball ($15)? Is football America’s new pastime? Use elasticity to explain.
3. The demand for milk at Noolidge College is as follows:
Price/gallon Quantity demanded
$1.50 6,000
$2.00 4,000
Assume that the price of milk rises from $1.50 to $2.00.
A. Using the midpoint formula, calculate the elasticity of demand. Is the demand elastic, inelastic or neither in this price range?
B. Calculate the change in the buyers’ total expenditure. Based upon this calculation is the demand elastic, inelastic or neither in this price range?
C. Are your answers in parts a and b consistent?
4. The market for videocassettes where the supply and demand curves are given by Qs= 3P and Qd=60 – 2P, respectively.
A. If the government imposes a price ceiling of $5 in this market, what will happen to the positions of the demand and supply curve?
B. Considering the demand curve only. Calculate the total revenue when the price is $5 and when the price is $10. Is demand elastic or inelastic?
C. Considering the demand curve only. Calculate the total revenue when the price is $20 and when the price is $25. Is demand elastic or inelastic?
D. Using the midpoint formula, calculate the price elasticity of demand between $5 and $10, and between $20 and $25.
5. The cross-price elasticity for Good X (to a change in Good Y’s price) is -.7. The cross-price elasticity for Good X (to a change in Good Z’s price) is +.7. Good X’s income elasticity is -.7. If the manufacturer of Good X wants to increase the demand for their product, which of the following scenarios is the most preferred? Explain your answer.
A. The economy experiences unexpected prosperity and the price of Good Y increases.
B. The economy experiences an unexpected recession and the price of Good Y increases.
C. The economy experiences unexpected prosperity and the price of Good Y decreases.
D. The economy experiences an unexpected recession and the price of Good Z increases.
E. The price of Good Y increases and the price of Good Z increases.