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GA3s08 - demand Derive the relevant equation and explain...

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University of Wisconsin Department of Economics Economics 301: Intermediate Microeconomic Theory Korinna K. Hansen Group Assignment 3 Due Date : Wednesday, March 5, 2008 Reading Assignment: Varian, Chapter 15 Problem Assignment : Here are some critical questions for our class discussions regarding price elasticity of demand, marginal revenue, income elasticity of demand, and the Laffer curve. For each one of the following questions you should be able to communicate to an audience all important relevant information in a well-organized and concise way. Make sure that you are ready to present enough detail. 1). What is the exact relationship between marginal revenue and price elasticity of
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Unformatted text preview: demand? Derive the relevant equation and explain what this equation implies for the relationship between the size of the price elasticity of demand and revenue. 2). Derive and graph the marginal revenue (MR) curve for a linear demand curve. 3). Define the income elasticity of demand, give its formula and explain the type of information it might give us for the different types of goods. Can you prove that income elasticity of demand values tend to cluster around 1? 4). Graph and describe the Laffer curve. What type of information does it give us?...
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