ProblemSet6-10 - EC201: Spring 2010 Professor Steven Haider...

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EC201: Spring 2010 Professor Steven Haider Problem Sets for Chaps 6 - 10 NOTE: An answer key follows each of the chapters. In the answer key, each question is assigned a “Topic”, which generally refers to a subtitle of the text. Thus, if you would like additional information about any of the questions, these topics will point you to where to look in the text. Version: 16-Feb-10
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Chapter 6 1. The Cozy Chair Company believes it can sell 200 chairs at $200 per chair, or 300 chairs at $150 per chair. Using the midpoint formula, you can calculate that the price elasticity of demand (to the nearest tenth) for Cozy Chairs is: A) 2.5. B) 1.4. C) 0.7. D) 0.5. Hint: Recall that the formula you should use for PED when given specific points is 2 / ) ( ) ( 2 / ) ( ) ( / ) ( / ) ( PED 2 1 1 2 2 1 1 2 1 2 1 2 P P P P Q Q Q Q P Average P P Q Average Q Q D D D D D D D Notice we have all of the pieces that we need: initial price=200, final price=150, initial quantity= 200, final quantity=300. Many students make mistakes when trying to plug everything into their calculator at one time so be careful or do it piece by piece. Remember, for PED, we drop the negative sign (take the absolute value). Use the following to answer questions 2-3: Figure: Demand for Shirts Page 1
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Chapter 6 2. (Figure: Demand for Shirts) The price elasticity of demand for the segment AB, using the midpoint method, is: A) 13. B) 11. C) 0.91. D) 0.1. Hint: For the segment AB, initial price=$60, final price=$50, initial quantity=0, final quantity=100. 3. (Figure: Demand for Shirts) The price elasticity of demand for the segment EF, using the midpoint method, is: A) 1.3. B) 1. C) 0.7. D) 0.33. 4. The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ________ and demand is described as ________. A) 0.2; inelastic B) 5; inelastic C) 0.2; elastic D) 5; elastic Use the following to answer questions 5-6: Scenario: Price Elasticity When calculating price elasticity with the following data, please use the midpoint method and take the absolute value. Page 2
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5. (Scenario: Price Elasticity) What is the price elasticity of demand between $2.25 and $2.00? A) 4.00 B) 5.67 C) 9.00 D) 17.6 6. (Scenario: Price Elasticity) What is the price elasticity of demand between $1.75 and $1.50? A) 0.42 B) 1.5 C) 1.86 D) 0.08 Use the following to answer question 7: Figure: Demand for Shirts 7. (Figure: Demand for Shirts) Using the midpoint method, the absolute value of the price elasticity of demand for the segment AB is: A) less than the price elasticity of demand for segment BC . B) is less than the price elasticity of demand for segment EF . C) is zero.
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This note was uploaded on 05/18/2010 for the course ECONOMIC Ec 201 taught by Professor Haider during the Spring '10 term at MSU - Iligan Inst of Tech.

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ProblemSet6-10 - EC201: Spring 2010 Professor Steven Haider...

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