sol_even_4.ppt

# sol_even_4.ppt - Chapter 4 1. The schedule below shows the...

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Chapter 4

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1. The schedule below shows the number of packs of bagels bought in Davis, California, each day at a variety of prices. Price of bagels (\$/pack) Number of packs purchased per day 6 0 5 3,000 4 6,000 3 9,000 2 12,000 1 15,000 0 18,000
a. Graph the daily demand curve for packs of bagels in Davis. Note: Price is always on vertical axis, Quantity is always on horizontal axis. Slope: Rise = 6/18,000 = 1/3,000 Run P (\$/pack) Q (1000s of packs/day 6 18 9 3

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a. Calculate the price elasticity of demand at the point on the demand curve at which the price of bagels is \$3 per pack. Elasticity: P/Q x 1/Slope = \$3/9,000 packs x 1/ 1/3,000 = 1 (unit elastic) ε = % % Q P
a. If all bagel shops increased the price of bagels from \$3 per pack to \$4 per pack, what would happen to total revenue? \$3 ------9,000 packs Total revenue: \$3 x 9,000packs = \$27,000 \$4 ----- 6,000 packs Total revenue: \$4 x 6,000packs = \$24,000 Revenue will fall from \$27,000 to \$24,000 As Price rises, Quantity falls, TR falls, so elasticity >1. People are very sensitive to the price changes. (maybe there’s another substitute goods) (Demand is elastic)

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a. Calculate the price elasticity of demand at a point on the demand curve where the price of bagels is \$2 per
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## This note was uploaded on 09/06/2010 for the course FBE ECON1001 taught by Professor Dr.demurger during the Fall '08 term at HKU.

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sol_even_4.ppt - Chapter 4 1. The schedule below shows the...

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