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ps4 - ECON1001 Tutorial 4 Q1 When the price of hot dog is...

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ECON1001 Tutorial 4

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Q1. When the price of hot dog is \$1.50 each, 500 hot dogs are sold every day. After lowering the price to \$1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs? A) 66.67 B) 5 C) 1 D) 0.2 E) 0.015 Ans: d
Calculating Price Elasticity of Demand ε = % % Q P - - = ÷ New Old New Old Old Old Q Q P P Q P = ÷ = × Q P Q P Q P P Q

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Price Elasticity of Demand for Hot Dogs = = = = 500, 510 \$1.50, \$1.35 Old New Old New Q Q P P = - = = - = - 510 500 10 \$1.35 \$1.50 \$0.15 Q P = - 10 1.50 0.15 500 Old Old P Q P Q = - 0.2 (D)
Q2. For which of the following products is demand likely to be least price elastic? A) Frozen Food B) Soft Drinks C) Groceries D) Diet Coke E) Not enough information provided to answer this question Ans:c

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What affects Price Elasticity of Demand? One major factor is the availability of substitutes . If there are many substitutes for Good X available in the market, people tend to be very responsive to changes in P X , and hence, higher elasticity . In this question, we check out which option is the most difficult to be substituted.
(A)Frozen food can easily be replaced by fresh food. So as (B). (D) Not difficult to find substitutes to soft drinks, especially a particular brand. (C) Groceries are the hardest to be replaced as they are necessities.

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Elasticity of Demand for a candy bar at an airport is likely to be the price elasticity for a candy bar in a grocery store. A)
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ps4 - ECON1001 Tutorial 4 Q1 When the price of hot dog is...

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