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ElasticityII - 2 Mankiw#4 Chapter 5 A price changes causes...

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ECON 200 B Practice Problems Elasticity Friday, April 16 th , 2010 1. Mankiw #6, Chapter 5. The accompanying table shows the demand schedule for compact discs. Price of VW Beetles Quantity demanded (when income is $10,000) Quantity demanded (when income is $12,000) $8 40 CDs 50 $10 32 CDs 45 $12 24 CDs 30 $14 16 CDs 20 $16 8 CDS 12 a) Using the midpoint method, calculate the price of elasticity of demand when the price of CDs rises from $8 to $10 (i) when income is $10, 000, (ii) when income is $12,000. b) Calculate the income elasticity of demand as your income increases from $10,000 to $12,000 when (i) price is $12 , (ii) price is $10.
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Unformatted text preview: 2. Mankiw #4, Chapter 5 A price changes causes quantity demanded to decrease by 30% while total revenue of that good increases by 15%. Is the demand curve elastic or inelastic? Explain. 3. Mankiw #13, Chapter 6. a) Show the effect of a $0.50 per cone subsidy on the demand curve for ice-cream cones, the effective price received by sellers, the effective price paid by buyers, and the quantity of cones sold. b) Does the consumer gain or lose from this policy? Do producers gain or lose? Does the government gain or lose?...
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