PS 3 Solutions - Economics I Professor Gunter TA: Chris...

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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? When Price = $1, Q = 15 books 2. How will the closure of the used bookstore affect her consumption (what is new Q)? When Price = $5, Q = 3 books 3. What is the percent change in price? In quantity? % ∆ Price = (P 2 – P 1 ) / P 1 = (5-1)/1 = 500% % ∆ Quantity = (Q 2 -Q 1 )/Q 1 = (3 – 15)/ 15 = - 80% - Using the Midpoint Formula, these numbers are irrelevant in elasticity calculation. 4.
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This note was uploaded on 02/26/2008 for the course ECO 001 taught by Professor Gunter during the Fall '06 term at Lehigh University .

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PS 3 Solutions - Economics I Professor Gunter TA: Chris...

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