Principles of Microeconomics + DiscoverEcon code card

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Answers to Problems 1. For the demand curve shown, the slope is 1 so (1/slope) is also 1. The absolute value of the price elasticity of demand at any point on this demand curve is thus the ratio (P/Q) at that point. A infinity B 3 C 1 D 1/3 E 0 2.a. P Q 100 75 50 25 100 50 25 75 A B C D E P ($/pack) Q (1000s of packs/day 6 18 9 3 b. Use the formula: elasticity = (P/Q) (1/slope). When P = 3, Q = 9 and 1/slope is 3. So elasticity = 3(3/9) = 1.0. c. If the price increases from $3 to $4, revenue will fall from $27,000 to $24,000. d. Using the same formula as in b, elasticity = (2/12)x(3) = 0.5. e. If the price increases from $2 to $3, revenue will rise from $24,000 to $27,000. 3. To maximize revenue from the sale of tickets price should be set at the midpoint of the demand curve, p = $6/visit.
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P ($/visit) Q (visitors per day) 6 12 3 6 elastic region inelastic region 4. The price elasticity of a good generally increases with the number of substitutes it has. It is easier to substitute a Ford or Toyota for a Chevrolet than it is to substitute a motorcycle or a skateboard for a car.
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