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##### The mid points variation of the arc own price elasticity of demand formula

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The mid points variation of the arc own price elasticity of demand formula is as follows;h = - [(Q1 - Q0) / (Q0 + Q1)] X [(P0 + P1) / (P1 - P0)] where (P0, Q0) and (P1, Q1) are two price - quantity demanded combinations.;Show all work.;1. The own price elasticity of demand for gasoline is estimated to be 0.6.;a. Classify the demand as elastic, inelastic or unit elastic.;b. Predict the percentage change in quantity demanded if price increases by 40%.;Price decrease by 40;2. The own price elasticity of demand for sporting goods is estimated to be 2.4.;a. Classify the demand as elastic, inelastic or unit elastic.;b. Predict the percentage change in quantity demanded if price decreases by 15%.;decreases by 15%.;3. The own price elasticity of demand for public transportation is estimated to be;a. Classify the demand as elastic, inelastic or unit elastic.;b. Determine the percentage change in price required to increase the quantity demanded of public transportation by 12%.;4. Suppose that two price-quantity demanded combinations for some product are ($1.20, 90 units) and ($0.80, 110 units). Using the mid points variation of the arc own price elasticity of demand formula, calculate the coefficient of elasticity for both a price increase and a price decrease. Show all work.;5. The following table represents the demand schedule for museum admissions in a small city;Price (per visit per person) Quantity Demanded (thousands of person visits per year);A $10 2;B 8 4;C 6 6;D 4 8;E 2 10;a. What is the shape of the corresponding demand curve - linear or non linear?;b. Using the mid points variation of the arc own price elasticity of demand formula, calculate the coefficient of elasticity between combinations A and B, B and C, C and D, and D and E. Show all work. For each calculated coefficient of elasticity, classify the demand as elastic, inelastic or unit elastic.;c. What is the change in the value of the coefficient of elasticity as price decreases - increases, decreases, or no change? Does demand become more inelastic or more elastic?;d. What is the explanation for the change in the coefficient of elasticity as price decreases?;e. For each combination, calculate total revenue (TR) = P X Q.;f. Between what two combinations is total revenue the greatest?;6. If the demand for a product is inelastic, buyers do not reduce their purchases at all as price changes.? Evaluate this statement.;7. Suppose there is an increase in the supply of a product. Rank the following own price elasticity of demand classifications with respect to the largest effect on price and the smallest effect on quantity: perfectly (infinitely) elastic, elastic, inelastic, unit elastic, or perfectly (infinitely) inelastic. Diagrams may be useful.;8. Suppose there is a decrease in the supply of a product. Rank the following own price elasticities of demand with respect to the smallest effect on price and the largest effect on quantity: 2.3, 0.36, 1.0. Diagrams may be useful.;9. A consultant estimates the price elasticity of demand for a particular brand of shoes to be 3.5. The company is planning to reduce the price of the brand by 10%. Determine the direction of the change in the company?s total revenue, total costs and profits if price decreases by 10%.;10. If the own price elasticity of demand for beer is approximately unity, what would be the direction of the change in total revenue, total cost and profits of a very small increase in price.;11. The own price elasticity of demand for cigarettes is 0.5. Suppose all of the;cigarette manufacturers colluded to raise prices by 20%. Predict the direction of the change in total revenue, total costs and profits of all companies combined if price were to increase.;12. For each of the following pairs of products determine which product is more own price elastic in demand. Identify the price elasticity of demand determinant involved and explain the reason.;a. Luxury cars, BMW5 series;b. Coca Cola, beverages;c. green beans, clothing;d. chewing gum, furniture;e. Christmas toys at Thanksgiving time, Christmas toys on Christmas Eve;f. washing machine, clothing

Paper#21245 | Written in 18-Jul-2015

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