Extensions of Demand and Supply Analysis
ANSWERS TO ENDOFCHAPTER 18 QUESTIONS
181
Explain why the choice between 1, 2, 3, 4, 5, 6, 7, and 8 “units” or 1000, 2000, 3000, 4000, 5000,
6000, 7000, and 8000 movie tickets, makes no difference in determining elasticity in Table 18.1.
Price elasticity of demand is determined by comparing the percentage change in price and the
percentage change in quantity demanded.
The percentage change in quantity will remain the
same regardless of whether the difference is between 1 unit and 2 units or 1000 units and 2000
units.
182
(
Key Question
)
Graph the accompanying demand data, and then use the midpoint formula for E
d
to determine price elasticity of demand for each of the four possible $1 price changes.
What can
you conclude about the relationship between the slope of a curve and its elasticity?
Explain in a
nontechnical way why demand is elastic in the northwest segment of the demand curve and
inelastic in the southeast segment.
Product
price
Quantity
demanded
$5
4
3
2
1
1
2
3
4
5
See the graph accompanying the answer to 183.
Elasticities, top to bottom:
3; 1.4; .714; .333.
Slope does not measure elasticity.
This demand curve has a constant slope of 1 (= 1/1), but
elasticity declines as we move down the curve.
When the initial price is high and initial quantity
is low, a unit change in price is a
low
percentage while a unit change in quantity is a
high
percentage change.
The percentage change in quantity exceeds the percentage change in price,
making demand elastic.
When the initial price is low and initial quantity is high, a unit change in
price is a
high
percentage change while a unit change in quantity is a
low
percentage change.
The
percentage change in quantity is less than the percentage change in price, making demand
inelastic.
183
(
Key Question
)
Calculate totalrevenue data from the demand schedule in question 2.
Graph
total revenue below your demand curve.
Generalize about the relationship between price
elasticity and total revenue.
See the graph.
Total revenue data, top to bottom:
$5; $8; $9; $8; $5.
When demand is elastic,
price and total revenue move in the opposite direction.
When demand is inelastic, price and total
revenue move in the same direction.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.
 Summer '11
 na
 Supply And Demand, producer, percentage change, g. Price

Click to edit the document details