1.Define the price elasticity of demand and the income elasticity of demand. 2.List and explain the four determinants of the price elasticity of demand discussed in the chapter. 3.What is the main advantage of using the midpoint method for calculating elasticity? 4.If the elasticity is greater than 1, is demand elastic or inelastic? If the elasticity equals 0, is demand perfectly elastic or perfectly inelastic?
5. On a supply-and-demand diagram, show equilibrium price, equilibrium quantity, and the total revenue received by producers. 6.If demand is elastic, how will an increase in price change total revenue? Explain. 7.What do we call a good whose income elasticity is less than 0? 8.How is the price elasticity of supply calculated? Explain what it measures. 9.What is the price elasticity of supply of Picasso paintings? 10.Is the price elasticity of supply usually larger in the short run or in the long run? Why? 11.How can elasticity help explain why drug interdiction could reduce the supply of drugs, yet possibly increase drug-related crime? 1.For each of the following pairs of goods, which good would you expect to have more elastic demand and why? 2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:
○ a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.) ○ b. Why might vacationers have a different elasticity from business travelers? 2. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. ○ a. if the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) ○ b. Why might this elasticity depend on the time horizon?
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