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Leo Spornstarr
Bridget Hoffman
Thursday Discussion
Econ 202
Problem Set 2
1a.
Pat’s own price elasticity of demand for gas is 0.
Because the equation for ownprice
elasticity is change in quantity over change in price, and Pat says he wants 10 gallons of gas
before looking at the price, this means that his change in quantity is not dependent on the price.
Actually he’ll never change the amount no matter the price, so his change in x =0.
E = 0/(change
in price) = 0.
ADD A GRAPH
1a.
1b.
1b. Ron’s own price elasticity of demand for gas is infinity.
As previously mentioned, the
equation for ownprice elasticity is change in quantity over change in price.
Since he says he
only wants $10 of gas no matter what, he’ll buy $10 of gas no matter what the quantity is that he
will receive.
Therefore his change in price is equal to 0.
E = (change in quantity) / 0 = Infinity.
Therefore his graph will have a straight line going across at whatever the price of gas is.
1c.
In a practical sense, most real people would like the 10 gallons of gas for their car and
always choose that one.
That’s simply because you need your car to get places and if you have
no gas, because the price is too high and you’re only willing to spend $10, then you will have a
major problem.
Therefore, it’s most likely that a person would ask for the 10 gallons of gas.
If
the price of gas fluctuates a lot, then the chances are people will always want the 10 gallons of
gas because otherwise you won’t know how much gas you’re going to get for $10.
Depending
upon the price of gas you could get 1 gallon, or 5 gallons and depending upon if you’re in the
middle of desert you may end up dead or in the next city instead.
If the price of gas barely
fluctuates, then people are more likely to ask for $10 if they are concerned about the amount of
money they are going to spend, because they will get more or less the same amount of gas
regardless.
1d. The third guy Bob’s own price elasticity is unitelastic.
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This note was uploaded on 10/05/2011 for the course ECON 2021 taught by Professor Zelder during the Spring '11 term at Northwestern.
 Spring '11
 ZELDER
 Microeconomics, Price Elasticity

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