PSLecture13

PSLecture13 - 1 Problem Set for Lecture 13 The Short and...

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1 Problem Set for Lecture 13: The “Short” and the “Long” of Rent Control Intervention [January 12, 2010] Note: Questions marked with a T may be discussed during tutorials T13.1 “Nicolas looked at a straight line demand curve which intersected the price axis at 12 units and the quantity demanded axis at 4 units. On this straight line demand curve, Nicolas identifies Point A , which has a quantity demanded value of 1 and a price value of 9 and Point B , which has a quantity demanded value of 2 and a price value of 6. Using the arc formula for price elasticity of demand, Nicolas determines that the price elasticity of demand between Point A and Point B is minus 5/3 [ absolute value of 5/3 ]. Nicolas concludes that this demand curve is elastic for this arc. Needles, Nicolas’ friend argues that he knew that result without using the arc formula calculations. Why? Needles said just use the total revenue definition of price elasticity of demand from Point A to Point B.” T13.2 “Nicole looks at a straight line demand curve which has a price intercept of 20 and a quantity demanded intercept of 20. Nicole knows that the slope for a straight line demand curve is constant between any two points. Using this information, Nicole concludes that the price elasticity of demand must also be constant along all sections of this demand curve.” [ Hint : Use either the total revenue definition or the arc elasticity definition of price elasticity of demand formula to answer this question. T13.3 “Nina wonders why price elasticity of demand is far more important than price elasticity of supply.” 13.4 “Nolan is curious about the difference between the “willingness to pay” concept and the market equilibrium price: the price which all consumers have to pay. Nolan argues that consumer

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PSLecture13 - 1 Problem Set for Lecture 13 The Short and...

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