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PS _3 - Elasticity

# PS _3 - Elasticity - The following week a new discount...

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Economics I Professor Gunter TA: Chris Zwicker Problem Set #3: Elasticity Your Aunt Mildred LOVES to read trashy novels at the beach during her summer vacation. Here is a graph of her demand: Now Milly used to buy her trashy novels from a used book store on Packer Ave, which closed two weeks ago. Now Milly is forced to fill her consumption needs by visiting the overpriced bookstore at Lehigh University. The used bookstore charged \$1.00 for this drivel, and the University store charges \$5.00 for the same books. 1. How many books did Milly used to buy from the used book store? 2. How will the closure of the used bookstore affect her consumption (what is new Q)? 3. What is the percent change in price? In quantity? 4. What is the elasticity that represents this change in price(use the midpoint method to solve)? 5. How would you characterize this elasticity?
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Unformatted text preview: The following week a new discount bookstore opens and begins to sell the same trashy novels for \$2.00 a piece. 6. What happens to Mildred’s consumption after the discount bookstore opens (and after the used bookstore closes)? 7. What percent change occurs in the price she pays for books? 8. What percent change occurs in demand? 9. What is the price elasticity of her demand with this price change? How would you characterize this elasticity? Two weeks later the owner of the used bookstore had a change of heart and decided to reopen his humble little shop. 10. If the shop keep charges the same prices he did before, what will be the price elasticity of Mildred’s demand after the used bookstore reopens (changes from discount bookstore to used bookstore)? How would you characterize this elasticity?...
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