BUSN5620_Week_4_Personal_Assignment_Dennis_Goulet

# BUSN5620_Week_4_Personal_Assignment_Dennis_Goulet - DENNIS...

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DENNIS GOULET BUSN 5620 Problem 1 The following is a demand schedule for shoes: Price: \$100 \$80 \$60 \$40 \$20 Quantity: 10 14 18 22 26 -A- Illustrate the demand curve. -B- How much will consumers spend on shoes at a price of \$80? At P=\$80, q=14. -C- As price drops from \$100 to \$80, is the demand elastic or inelastic? Show your work or reasoning. As price drops from \$100 to \$80, q rises from 10 to 14. e= (% change in qty)/(%change in price) = - [4/10]/[20/100] = -(2/5)/(1/5) = -2 Hence the demand is elastic.
Problem 2 Advertisers convince people that to be stylish they need twice as many shoes. -A- Redraw the demand curve. Now the demand is twice the original amount at the same level of price. -B- How much will consumers now spend on shoes at a price of \$80? At P=\$80, q=28 -C- As price drops from \$100 to \$80, how does elasticity change as opposed to problem 1? Why? Now as the price changes from \$100 to \$80, q increases from 20 to 28. e= (% change in qty)/(%change in price) = - [8/20]/[20/100] = -(2/5)/(20/100) = -(2/5)/(20/100) = -2 Hence the demand is elastic and the remains unchanged. The elasticity remains unchanged since it is a relative measure and not a absolute measure. Since the increase in the quantity demanded is measured relative to the original quantity demanded.

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