Ch 5 Solutions

# Ch 5 Solutions - OpenStax College Principles of Economics...

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OpenStax College Principles of Economics CHAPTER 5: ELASTICITY Self-Check Questions 1. From the data shown in the table below about demand for smart phones, calculate the price elasticity of demand from: point B to point C, point D to point E, and point G to point H. Classify the elasticity at each point as elastic, inelastic or unit elastic. Points P Q A 60 3,000 B 70 2,800 C 80 2,600 D 90 2,400 E 100 2,200 F 110 2,000 G 120 1,800 H 130 1,600 Solution: From point B to point C, prices rise from \$70 to \$80, and Od decreases from 2,800 to 2,600. So: 2600 2800 % change in quantity = 100 (2600 2800) 2 200 100 2700 7.41 80 70 % change in price = 100 (80 70) 2 10 100 75 13.33 7.41% Elasticity of Demand = 13.33% 0.56     The demand curve is highly inelastic in this area; that is, its elasticity value is less than one. Answer from Point D to point E:

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OpenStax College Principles of Economics 2200 2400 % change in quantity = 100 (2200 2400) 2 200 100 2300 8.7 100 90 % change in price = 100 (100 90) 2 10 100 95 10.53 8.7% Elasticity of Demand = 10.53% 0.83     The demand curve is highly inelastic in this area; that is, its elasticity value is less than one. Answer from Point G to point H: 1600 1800 % change in quantity = 100 (1600 1800) 2 200 100 1700 11.76 130 120 % change in price = 100 (130 120) 2 10 100 75 13.33 11.76% Elasticity of Demand = 13.33% 0.88     The demand curve is approaching unit elasticity. 2. From the data shown in Table 05_03 about supply of alarm clocks, calculate the price elasticity of supply from: point J to point K, point L to point M, and point N to point P. Classify the elasticity at each point as elastic, inelastic, or unit elastic. Point Price Quantity Supplied J \$8 50 K \$9 70 L \$10 80 M \$11 88 N \$12 95 P \$13 100 Solution: From point J to point K, price rises from \$8 to \$9, and quantity rises from 50 to 70. So:
OpenStax College Principles of Economics 70 50 % change in quantity = 100 (70 50) 2 20 100 60 33.33 \$9 \$8 % change in price = 100 (\$9 \$8) 2 1 100 8.5 11.76 33.33% Elasticity of Supply = 11.76% 2.83 The supply curve is highly elastic in this area; that is, its elasticity value is greater than one. From point L to point M, the price rises from \$10 to \$11, while the Qs rises from 80 to 88: 88 80 % change in quantity = 100 (88 80) 2 8 100 84 9.52 \$11 \$10 % change in price = 100 (\$11 \$10) 2 1 100 10.5 9.52 9.52% Elasticity of Supply = 9.52% 1.0 The supply curve has unitary elasticity in this area. From point N to point P, the price rises from \$12 to \$13, and Qs rises from 95 to 100: 100 95 % change in quantity = 100 (100 95) 2 5 100 97.5 5.13 \$13 \$12 % change in price = 100 (\$13 \$12) 2 1 100 12.5 8.0 5.13% Elasticity of Supply = 8.0% 0.64 The supply curve is inelastic in this region of the supply curve. 3. Why is the demand curve with constant unit elasticity concave?

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