Problem Set 1

# Problem Set 1 - What does the sign of this elasticity tell...

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ECON – 301 Problem Set 1 1) (2.5 pt) Consider the following demand and supply relationships in the market for golf balls: = - - Qd 90 2P 2T and =- + - . Qs 9 5P 2 5R where T is the price of titanium, a metal used to make golf clubs, and R is the price of the rubber. a) If R = 2 and T = 10 , calculate the equilibrium price and quantity of golf balls. b) At the equilibrium values, calculate the price elasticity of demand and the price elasticity of supply. c) At the equilibrium values, calculate the cross-price elasticity of demand for golf balls with respect to the price of titanium.
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Unformatted text preview: What does the sign of this elasticity tell you about whether golf balls and titanium are substitutes or complements? 2) (2.5 pt) You are given the following information: • Price elasticity of demand for cigarettes at current price is -0.5. • Current price of cigarettes is \$0.05 per cigarette. • Cigarettes are being purchased at a rate of 10 million per year. Find a linear demand that fits this information and graph that demand curve....
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## This note was uploaded on 05/11/2011 for the course ECON 301 taught by Professor Sheng during the Spring '11 term at ITT Tech Pittsburgh.

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