Chapter 4
Answers to Problems
1.
For the demand curve shown, the slope is 1 so (1/slope) is also 1.
The absolute
value of the price elasticity of demand at any point on this demand curve is thus the
ratio (P/Q) at that point.
Point
Elasticity
A
infinity
B
3
C
1
D
1/3
E
0
3.
Since the demand curve is a straight line, the price should be set at the midpoint
of the demand curve in order to maximize total revenue.
This means that that you
should set the price at $6 per visit.
The elastic and inelastic regions of the demand
curve are shown below.
P
($/visit)
Q (visitors per day)
6
12
3
6
elastic region
inelastic region
5.
The more income a person has, the smaller a given expenditure will be as a
proportion of her overall budget, and hence the less likely she will be to respond
dramatically to a price change.
Thus senior executives, the most highly paid of the
three groups, should have the least priceelastic demand curves.
Students, the least
well paid, should have the most priceelastic demand curves.
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 Spring '11
 Brown
 Price Elasticity, Supply And Demand

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