# ec-12 - E201 Spring 2009 HOMEWORK#5 1 2 Describe the basic...

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E201 Spring 2009 HOMEWORK #5 1. Describe the basic notion of elasticity in plain English. 2. a. Define price elasticity of demand in words. b. Define price elasticity of demand mathematically. 3. a. If a 1% increase in price leads to a 3% decrease in quantity demanded, what is the elasticity coefficient? b. If a 1% increase in price leads to a 0.5% decrease in quantity demanded, what is the elasticity coefficient? c. If a 1% increase in price leads to a 1% decrease in quantity demanded, what is the elasticity coefficient? d. Label the coefficients in you found in (a, b, c) above as elastic, inelastic, or unit elastic. 4. What is the "midpoints rule" for computing an elasticity coefficient? 5. PRICE QUANTITY DEMANDED TOTAL REVENUE PRICE ELASTICITY \$20 0.5 18 1.5 16 2.5 14 4 12 6 10 8 8 11 6 15 4 20 2 26 a. Calculate total revenue for each price-quantity combination. b. Use the midpoint formula to calculate elasticity coefficients when price falls from \$20 to \$18, from \$18 to \$16, from \$16 to \$14, etc. c. Is elasticity constant along this demand schedule? Explain. d. For which prices is demand elastic? Inelastic? e. Look at the total revenue column and note how it changes. For what price changes is the change in total revenue positive? When is the change in total revenue negative?

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ec-12 - E201 Spring 2009 HOMEWORK#5 1 2 Describe the basic...

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