Section Questions Week 3

Section Questions Week 3 - quantity of surfboards is 600...

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Questions for Economics 1 1. Suppose a 18% fall in the price of strawberries increases the quantity of strawberries demanded by 24% and decreases the quantity of chocolate demanded by 12%. a. What is the price elasticity of demand for strawberries? Interpret your calculation in words. At the current price level, is the demand for strawberries elastic or inelastic? b. Are strawberries and chocolate complements or substitutes. Briefly explain your reasoning. 2. The demand for Australian wool is given by D A =5,000-2P A . The demand for New Zealand wool is given by D NZ =10,000-4P NZ . Since Australian wool and New Zealand wool are nearly identical, they always sell for the same price. Is the price elasticity of demand greater for Australian wool or for New Zealand wool? 3. If the elasticity of demand for DVDs is 3, what will a 4% decrease in their price do to the total amount spent on DVDs each week? 4. Assume that the equilibrium price of surfboards is $500, that the equilibrium
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Unformatted text preview: quantity of surfboards is 600 boards/week, that the elasticity of demand for surfboards is 2, and that the elasticity of supply is +1. If the government imposes a price ceiling of $400, what will be the resulting level of excess demand? 5. What is the most you can say about the relationship between the elasticity of demand at point A, point B and point C? A B C P Q D 1 D 2 6. Let the supply curve for gasoline be given by Q=3/2P-3 , and let the demand curve for gasoline be given by Q=5-1/2P . a. Sketch the supply curve and the demand curve. b. Compute the equilibrium price and quantity of gasoline, and label these on your graph. c. Suppose that President Bush allows companies to drill for oil in the Arctic National Wildlife refuge. How will Bushs new policy affect the equilibrium price and quantity of gasoline? d. Given President Bushs new policy, will total revenues increase or decrease for gasoline suppliers? Explain....
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Section Questions Week 3 - quantity of surfboards is 600...

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