4. Market research has revealed the following information about the market for chocolate bars: The demand schedule can be represented by the equation QD = 1600 − 300P, where QD is the quantity demanded and P is the price. The supply schedule can be represented by the equation QS = 1400 + 700P, where QS is the quantity supplied.
(a) Sketch a graph representing the market for chocolate bars. Identify the equilibrium point on your graph.
(b) Calculate the equilibrium price and quantity in the market for chocolate bars.
5. For each of the following pairs of goods, which good would you expect to have more elastic demand and why?
(a) Required textbooks or mystery novels
(b) Beethoven recordings or classical music recordings in general
(c) Subway rides during the next six months or subway rides during the next five years
(d) Root beer or water
(e) Insulin or Tylenol
(f) Food or bananas
6.Consider the following information from the market for lemonade:
Price |
Quantity Demanded |
Quantity Supplied |
$1 |
500 cups |
150 cups |
$2 |
200 cups |
310 cups |
(a) As the price changes from $1 to $2, what is the value of price elasticity of demand?
(b) As the price changes from $1 to $2, what is the value of price elasticity of supply?
(c) Sketch a diagram demonstrating the market for lemonade. Are the supply and demand curves relatively inelastic or elastic? Explain.
(d) Suppose that when the price of lemonade increases from $1 to $2, the quantity demanded of orange juice increases from 150 cups to 190 cups. Calculate cross-price elasticity of demand for orange juice.
(e) Are orange juice and lemonade substitute or complementary goods? Explain.
7. 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?
8. 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 demand 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?