Chapter 3 elasticity problem set analysis for economics course | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

Chapter 3 – Elasticity hangngt@neu.edu.vn CHAPTER 3: ELASTICITY
1. You own a small town movie theatre. You currently charge $5 per ticket for everyone
who comes to your movies. Your friend who took an economics course in college tells
you that there may be a way to increase your total revenue. Given the demand curves
shown, answer the following questions.
a. What is your current total revenue for both groups?
b. The elasticity of demand is more elastic in which market? 1 Chapter 3 – Elasticity hangngt@neu.edu.vn
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of $5 and $2 in the adult
market? Is this elastic or inelastic?
e. What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends
you increase the price of adult tickets to $8 each and lower the price of a child's
ticket to $3. How much could you increase total revenue if you take his advice?.
2. The problem set 2 is presented by the graph below:
a. Using the midpoint method:compute the elasticity of demand between points A and B.
b. Is demand along this portion of the curve elastic or inelastic? Interpret your
answer with regard to price and quantity demanded.
c. Compute the elasticity of demand between points B and C. Is demand along this
portion of the curve elastic or inelastic?
3. Using midpoint method, compute the elasticity in each case:
a. Company X produces a popular brand of smartphones with perfectly elastic 2 Chapter 3 – Elasticity hangngt@neu.edu.vn
demand. At a price of $500 per unit, they sell 100 units daily. Due to
increased competition and the availability of perfect substitutes from other
brands, Company X decides to maintain the price at $500 per unit. However,
they observe that they now sell 150 units daily.
b. You want to buy face masks for your family. Before the pandemic, at a price of
P100, you could buy 50 pieces of face masks. But you heard that the price has
increased, so now at a price of P120, you only bought 40 pieces of face masks.
c. A local bakery sells its specialty bread at ₱50 per loaf. At this price, they sell
100 loaves daily. Due to changes in consumer preferences and improved
marketing strategies, the bakery decides to raise the price to ₱60 per loaf.
After the price increase, they observe that they now sell 80 loaves daily.
4. XYZ Computer World, a computer shop, needs to raise its overall sales. Offering a
10% discount on every book it sells is one of the strategy. XYZ Computer World has
two distinct groups of customers according to their likely responses to the discount.
The data below shows how the two groups respond to the discount: GROUP I GROUP II (sales per week) (sales per week) Volume Of Sales 1.55 million 1.50 million Before The 10% Discount Volume Of Sales After 1.65 million 1.70illion The 10% Discount a.
Using the midpoint method, calculate the price elasticities of demand for group I and group II. b.
Explain how the discount will affect total revenue from each group. c.
Suppose XYZ Computer World knows which group each customer belongs to
when he logs on and can choose whether or not to offer the 10% discount. If
XYZ Computer World wants to increase its total revenue, should discounts be 3 Chapter 3 – Elasticity hangngt@neu.edu.vn
offered to group I or to group II, to neither group, or to both groups? 5.
Demand for pizza in the United States is represented as follows:
Qd = 200 – 0.5Pp – 0.25Pb + 50 D + 0.01 I For which:
Pp= the average price of a pizza (in dollar)
Pb = the average price of a six-pack of beer (in dollar)
D = a variable that is 1 during the soccer season and 0 outside the soccer season
I = the average yearly available income of a consumer
a) Determine the price elasticity of the demand for pizza when Pp = $8, Pb = $4, D=1 and I = $10 000.
b) Determine the cross-price elasticity of the demand for pizza with respect to the
price of beer when Pp = $8, Pb = $4, D=1 and I = $10 000.
c) Determine the income elasticity of the demand for pizza when Pp = $8, Pb = $4, D=1 and I = $10 000. 4