Problem Set 2 Discussion Sections Economics 200 We will review problems 1-3 in discussion sections beginning Wednesday, September 23. We will review problems 4-6 in discussion sections beginning Wednesday, September 30. 1. Consider the following demand schedule: Price Quantity $12 5 $10 10 $5 20 $3 30 (a) Calculate the elasticity of demand when price rises from (i) $3 to $5, (ii) $5 to $10, and (iii) $10 to $12. (b) When price rises from $3 to $5, does expenditure rise, fall, or remain constant? When price rises from $5 to $10? When price rises from $10 to $12? (c) Why should you have anticipated your answers to (b) once you had answered part (a)? 2. Suppose the price elasticity for cigarettes is 3 for teenagers and .6 for adults. The Maryland State Government hopes to reduce smoking among teenagers by 60% by raising the tax on cigarettes. (a) By what percent would the price of cigarettes have to increase in order to achieve this goal? (b) By how much would adult consumption of cigarettes fall as a result of such a policy change? 3.
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