Discussion section problem set 2 econ 200 Fall 2010

Discussion section problem set 2 econ 200 Fall 2010 - The...

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Problem Set 2 Discussion Sections Economics 200 We will review these problems in discussion sections beginning Wednesday, September 15. 1. Consider the following demand schedule: Price Quantity $12 5 $10 10 $5 20 $3 30 (a) Calculate the elasticity of demand when price rises from (i) $3 to $5, (ii) $5 to $10, and (iii) $10 to $12. (b) When price rises from $3 to $5, does expenditure rise, fall, or remain constant? When price rises from $5 to $10? When price rises from $10 to $12? (c) Why should you have anticipated your answers to (b) once you had answered part (a)? 2. Suppose the price elasticity for cigarettes is 3 for teenagers and .6 for adults.
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Unformatted text preview: The Maryland State Government hopes to reduce smoking among teenagers by 60% by raising the tax on cigarettes. (a) By what percent would the price of cigarettes have to increase in order to achieve this goal? (b) By how much would adult consumption of cigarettes fall as a result of such a policy change? 3. A friend of your always spends 1/3 of her income on food regardless of her income and regardless of the price of food. (a) What is your friend’s price elasticity of demand for food? (b) What is her income elasticity of demand for food?...
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This note was uploaded on 02/28/2012 for the course ECON 200 taught by Professor Vincent during the Fall '08 term at Maryland.

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