Elasticity QUestions.docx - 1 Qiqi a highly motivated entrepreneur plans on applying for a business loan from Bank of America She finds out that the

# Elasticity QUestions.docx - 1 Qiqi a highly motivated...

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1. Qiqi, a highly motivated entrepreneur plans on applying for a business loan from Bank of America. She finds out that the percent change in price of business loans increased to 5% last month. This resulted in a 50% percent change in quantity demanded. What is the business loan’s price elasticity? Solution : Price Elasticity = % Change in Quantity Demanded / % Change in Price Since we know that price changed by 5% and quantity changed by 50%, substituting these values, we get: Price Elasticity = 50%/5% = 50/5 = 10 2. Angeline, a bright college student finds out that the iPhone 10 was just launched this past week in Cupertino, CA. She along with the thousands of consumers plans on purchasing the iPhone 10 from Best Buy due to a price decrease from \$899.99 to \$649.99. Apple expects to see the quantity demanded for iPhone 10 to rise from 2 million to 3 million by the end of the year. What is the iPhone 10’s elasticity of demand? Solution: Initial Price(P 0 ) = 899.99 New Price (P 1 ) = 649.99 Initial Quantity(Q 0 ) = 2 million New Quantity (Q 1 ) = 3 million Elasticity of Demand = % Change in Quantity / % Change in Price = (P 0 /Q 0 )*((Q 1 -Q 0 )/(P 1 – P 0 )) = (899.99/2)*((3-2)/( 649.99 - 899.99)) = -1.80 Thus, Iphone elasticity of demand is -1.80

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3. Kenny is a terrific athlete as he is the captain of his basketball team.
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