change in 88 80 2 100 8 84 100 952 change in 11 10 2

# Change in 88 80 2 100 8 84 100 952 change in 11 10 2

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% change in quantity = 88 – 80 (88 + 80) ÷ 2 × 100 = 8 84 × 100 = 9.52 %change in price = \$11 – \$10 (\$11 + \$10) ÷ 2 × 100 = 1 10.5 × 100 = 9.52 Elasticity of Demand = 9.52% 9.52% = 1.0 The supply curve has unitary elasticity in this area. From point N to point P, the price rises from \$12 to \$13, and Qs rises from 95 to 100: % change in quantity = 100 – 95 (100 + 95) ÷ 2 ×100 = 5 97.5 ×100 = 5.13 % change in price = \$13 – \$12 (\$13 + \$12) ÷ 2 × 100 = 1 12.5 × 100 = 8.0 Elasticity of Supply = 5.13% 8.0% = 0.64 The supply curve is inelastic in this region of the supply curve. 3 . The demand curve with constant unitary elasticity is concave because at high prices, a one percent decrease in price results in more than a one percent increase in quantity. As we move down the demand curve, price drops and the one percent decrease in price causes less than a one percent increase in quantity. 4 . The constant unitary elasticity is a straight line because the curve slopes upward and both price and quantity are increasing proportionally. 5 . Carmakers can pass this cost along to consumers if the demand for these cars is inelastic. If the demand for these cars is elastic, then the manufacturer must pay for the equipment. 6 . If the elasticity is 1.4 at current prices, you would advise the company to lower its price on the product, since a decrease in price will be offset by the increase in the amount of the drug sold. If the elasticity were 0.6, then you 512 Answer Key This OpenStax book is available for free at
would advise the company to increase its price. Increases in price will offset the decrease in number of units sold, but increase your total revenue. If elasticity is 1, the total revenue is already maximized, and you would advise that the company maintain its current price level. 7 . The percentage change in quantity supplied as a result of a given percentage change in the price of gasoline. 8 . Percentage change in quantity demanded = [(change in quantity)/(original quantity)] × 100 = [22 – 30]/[(22 + 30)/2] × 100 = –8/26 × 100 = –30.77 Percentage change in income = [(change in income)/(original income)] × 100 = [38,000 – 25,000]/[(38,000 + 25,000)/2] × 100 = 13/31.5 × 100 = 41.27 In this example, bread is an inferior good because its consumption falls as income rises. 9 . The formula for cross-price elasticity is % change in Qd for apples / % change in P of oranges. Multiplying both sides by % change in P of oranges yields: % change in Qd for apples = cross-price elasticity X% change in P of oranges = 0.4 × (–3%) = –1.2%, or a 1.2 % decrease in demand for apples. Chapter 6 1 . The rows of the table in the problem do not represent the actual choices available on the budget set; that is, the combinations of round trips and phone minutes that Jeremy can afford with his budget. One of the choices listed in the problem, the six round trips, is not even available on the budget set. If Jeremy has only \$10 to spend and a round trip costs \$2 and phone calls cost \$0.05 per minute, he could spend his entire budget on five round trips but no phone calls or 200 minutes of phone calls, but no round trips or any combination of the two in between. It is easy to see all of his budget options with a little algebra. The equation for a budget line is:

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