problemSet02

# problemSet02 - 1 ECONOMICS 100 PROBLEM SET#2(Elasticity...

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PROBLEM SET #2 (Elasticity; Market Interventions) This problem set is for the second tutorial, the week of October 16, 2006. You have 9 sessions from which to choose. See the website for details. 1. Elasticity 1.1 Calculating Elasticity Consider the demand schedule given by the equation: p = 10 – 1q, and the points A (p = \$8; q = 2) and B (p= \$6 and q = 4). The diagram below shows this. Now calculate the point elasticity at A, and the arc elasticity between A and B. P 10 A (\$8, 2) B (\$6, 4) 10 Q Arc Elasticity = Point Elasticity = 1.2 Elasticity Concepts What do the following statements suggest about the elasticity of the commodities in question: a) I love peanut butter; to me a day without peanut butter is not a day! b) As the price of calculators fell (due to improved technology) the revenues of my company, a producer of calculators, grew dramatically. c) Now that I'm an executive, I've tossed out all my polyester suits. d) I've noticed that every time the price of tea has risen, the price of coffee has risen too (shortly thereafter). e) I've been watching agricultural markets carefully, and I've seen a funny thing: when the demand for corn goes up, the price of corn doesn't rise very much, but when the demand for asparagus goes up (by the same

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problemSet02 - 1 ECONOMICS 100 PROBLEM SET#2(Elasticity...

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