Econ1-Fall2010-PS3

# Econ1-Fall2010-PS3 - Econ 1 PS#3 Elasticity Fall 2010 Based...

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Econ 1 PS #3: Elasticity Fall 2010 Based on the lecture for Elasticity (A) you should be able to work #1(a), 3, and 5. 1. Suppose a 18% fall in the price of strawberries increases the quantity of strawberries demanded by 24% and decreases the quantity of chocolate demanded by 12%. a. What is the price elasticity of demand for strawberries? Interpret your calculation in words. At the current price level, is the demand for strawberries elastic or inelastic? b. Are strawberries and chocolate complements or substitutes. Briefly explain your reasoning. 2. Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic. a. Milk b. Frozen cheese pizza c. Cola d. Prescription drugs 3. If the elasticity of demand for DVDs is 3, what will a 4% decrease in their price do to the total amount spent on DVDs each week? 4. Assume that the equilibrium price of surfboards is \$500, that the equilibrium quantity of surfboards is 600 boards/week, that the elasticity of demand for them

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Econ1-Fall2010-PS3 - Econ 1 PS#3 Elasticity Fall 2010 Based...

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