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Elasticity Exercises 1. Suppose D = -0.8.

If price falls by five percent we can conclude that


a. quantity demanded will decrease by six percent. b. consumer expenditure will decrease by one percent c. quantity demanded will increase by four percent. d. demand for the good is elastic at the current price. e. (b) and (c) are correct

2. A 2 percent fall in price increases total revenue by one-half percent. We can conclude that a. the elasticity of demand is -1.25. b. the quantity demanded increases by five percent c. consumer expenditure increases three percent. d. demand is inelastic at the current price. . e. All of the above are correct.

3. Hawaii Air charges P0 = $100 per round-trip between Lihue and Honolulu. At this price, Q0 = 400 trips are demanded . If the elasticity of demand D = - and Hawaii Air raises it ticket price to Pn = $150, how many round trips will be demanded? a. 425. b. 415. c. 390. d. 327. e. 297

4. Jims demand for asparagus is given by QD = 40 2P. Jim buys Q = 20 units of asparagus and spends CE = $200 for it. One of the following is incorrect. At this quantity, a. The price elasticity of demand is D = 1. b. The price (per unit) of asparagus is P = $10 . c. If price rises Jim will spend less then $200 for asparagus. d. If price falls Jim will spend less than $200 for asparagus. e. If price falls by $1, Jim will buy one additional unit of asparagus. 5. Jennifers demand for grapples is QJ = 100 5P and Danielles is QD = 200 10P. One of the following is incorrect. a.. At any price between $10 and $19, Jennifer will spend less on grapples than Danielle. b. For every one dollar drop in price, Danielle will purchase twice as many additional units of grapples as Jennifer. c. At any price Jennifers elasticity of demand is one-half than of Danielles. d. If the market price is P = $10, Jennifer will spend $500 on grapples, exactly one-half as much as Danielles would spend at this price.

6. A one percent decrease in price increases consumer expenditure on a commodity by one percent. We can conclude that the price elasticity of demand is D = - ____: a. -2.0. b. -1.5. c. -1.0. d. -.0.5. e. none of the above. 7. Mark buys Q0 = 10 units of a good when its price is P0 = $20. If the elasticity is D = 1, we can conclude that he will buy QN = ____ units if the price rises to PN = $25, a. 4. b. 8. c. 6. d. 10. e. none of the above.

Answer 8 through 10 using the following information: A beer vendor faces a demand curve given by QD = 60,000 200P where P is the price of beer in cents and Q is the number of beer purchased. 8. If the vendor is selling QS = 20,000 beers, his total revenue is ______ thousand a. $25. b. $30. c. $35. d. $40. e. $45.

9. The point elasticity of demand when P = $2 is _____ a. -3.00. b. -2.00. c. -1.50. d. -1.25. e. -0.80.

10. To maximize revenue from beer sales the vendor should set price at $ _____. At this price the vendors total revenue is TR = $ ______