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ECN 203 Lecture 6: ECON 203 Ch.5 Part 2

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ochreporpoise133
10 Feb 2017
School
Syracuse University
Department
Economics
Course
ECN 203
Professor
Ali

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Document Summary

Elasticity: the numerical measure of responsiveness of quantity demanded or quantity supplied to one of its determinants. Price elasticity of demand = percentage change in quantity demanded / percentage change in price. The price and demand are always moving in different directions - as one goes down, the other goes up. So if the change is -22. 2%, record it as 22. 2% (end value - start value) / start value x 100% = percentage change. (end value - start value) / midpoint x 100% The midpoint is the average of the two points. (12 - 8) / 10 x 100% = 40% If p = , qd = 8600. If p = , qd = 7400. Use the following information to calculate the price elasticity of demand for hotel rooms. The price elasticity of demand: (8600 - 7400) / 8600 x 100% = 15% (165 - 135) / 165 x 100% = 20%

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Related Questions

1. Grand TV Manufacturer wants to increase the quantity of TVs it sells by 8%. If the price elasticity of demand is 4, the manufacturer must:

a. decrease price by 1.5%.

b. increase price by 1.5%.

c. increase price by 2.0%.

d. decrease price by 2.0%.

 

2. Suppose that an Italian ice cream firm is facing a linear demand curve and that the current price for the Italian ice cream is set at a point where the price elasticity is 0.7. If the firm decreases the product price,

Select one:

a. the demand becomes less inelastic, and total revenue increases.

b. the demand becomes more inelastic, and total revenue decreases.

c. the demand becomes more inelastic, and total revenue increases.

d. the demand becomes less inelastic, and total revenue decreases.

 

3. Suppose that in a month, the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

a. elastic.

b. zero.

c. inelastic.

d. unitary elastic.

 

4. The price elasticity of demand for color printers is 1.6, and you would like to see the quantity demanded of color printers increase by 32%. Then the percentage change in price should be:

Select one:

a. 15%.

b. 25%.

c. 10%.

d. 20%.

 

5. The price of apple increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is:

a. 0.9.

b. 0.02.

c. 1.1.

d. 1.

PROBLEM SET ONE -2 - PRICE-ELASTICITY OF DEMAND

P1

P2

QD1

QD2

I

II

III

IV

V

1

1

2

10

5

2

5

3

40

90

3

12

20

200

200

4

3

2

9

9

5

0.40

1.40

30

15

6

1.2

4.0

20

15

7

7.5

4.6

40

30

8

5

5.000…01

1x106

0

9

5

4.9999….

10

1x109

10

6

12

12

6

11

18

36

360

180

12

7

15

24

16

13

7

16

78

78

14

25

65

150

100

15

65

91

1300

780

16

4

5

21

11

17

8

4

30

54

18

140

275

625

495

19

78

91

780

780

20

91

78

780

780

Column I - determine the Price-Elasticity of Demand Coefficient. Find material in Chapter 6 and the Powerpoint of Elasticity Chap 004 19e.ppt

change in quantity demanded change in price

ED = ---------------------------------------- ∕ ----------------------------

sum of quantities demanded / 2 sum of prices / 2

The data in the first four columns represent price (P) and quantity demanded (Qd) in time 1 (before change in price) and time 2 (after change in price). Note that results should be expressed in absolute terms (see paragraph Elimination of Minus Sign). For example, -1 should be expressed as │1│.

Column II – Based on topic concerning Interpretations of ED, indicate which applies based on how the quantity demanded changed subsequent to a change in price (elastic, inelastic, etc.)

Column III - you need to determine if the good in question would be considered a necessity, a luxury or neither.

Column IV – Indicate, in monetary terms, how much is the change in total revenue or total expenditure (TR = P X QD), from the first price level to the second.

Column V - the direction of the change, also in monetary terms, that is, increasing or decreasing, and by how much? (show a + sign for increasing and a – sign for decreasing).

Note: for any monetary result please include the applicable currency symbol ($, €, etc.)

The Demand for soft drink (in cans per capita per year) is estimated as Log Q = a + b log P+ c log I + d log T

where Q = Soft drink consumption in cans per capita per year

P = 6-pack price

I = Income Per capita

T = Mean temperature across the 48 contiguous states in the United States
Soft Drink Demand Data:
cans/capita/yr 6 pack price income/capita mean temp
Q P I T
Alabama 200 2.19 13 66
Arizona 150 1.99 17 62
Arkansas 237 1.93 11 63
California 135 2.59 25 56
Colorado 121 2.29 19 52
Connecticut 118 2.49 27 50
Delaware 217 1.99 28 52
Florida 242 2.29 18 72
Georgia 295 1.89 14 64
Idaho 85 2.39 16 46
Illinois 114 2.35 24 52
Indiana 184 2.19 20 52
Iowa 104 2.21 16 50
Kansas 143 2.17 17 56
Kentucky 230 2.05 13 56
Louisiana 269 1.97 15 69
Maine 111 2.19 16 41
Maryland 217 2.11 21 54
Massachusetts 114 2.29 22 47
Michigan 108 2.25 21 47
Minnesota 108 2.31 18 41
Mississippi 248 1.98 10 65
Missouri 203 1.94 19 57
Montana 77 2.31 19 44
Nebraska 97 2.28 16 49
Nevada 166 2.19 24 48
New Hampshire 177 2.27 18 35
New Jersey 143 2.31 24 54
New Mexico 157 2.17 15 56
New York 111 2.43 25 48
North Carolina 330 1.89 13 59
North Dakota 63 2.33 14 39
Ohio 165 2.21 22 51
Oklahoma 184 2.19 16 82
Oregon 68 2.25 19 51
Pennsylvania 121 2.31 20 50
Rhode Island 138 2.23 20 50
South Carolina 237 1.93 12 65
South Dakota 95 2.34 13 45
Tennessee 236 2.19 13 60
Texas 222 2.08 17 69
Utah 100 2.37 16 50
Vermont 64 2.36 16 44
Virginia 270 2.04 16 58
Washington 77 2.19 20 49
West Virginia 144 2.11 15 55
Wisconsin 97 2.38 19 46
Wyoming 102 2.31 19 46

( Data in Excel have been saved in the folder of Exam I on weekly study materials

In order to receive full points, you need to show me in details how to get your answers. )

1) What is regression equation using multiple linear regression model?

How would you interpret the coefficients of each independent variable in the model? (5 points)

2) What is price elasticity of demand ? How would you interpret it? (5 points)

3) The approximate percentage increase or decrease in demand if 6-pack price percentage increases by 3%.

****MUST SHOW ALL WORK