Q.1 Do you think the price elasticity of demand for Ford sport utility vehicles will increase, decrease or remain the same when each of the following events occurs? Explain your answer.
- Other car manufacturers, such as GM, decide to make and sell SUVs.
b. SUVs produced in foreign countries are banned from the American market
c. Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars.
d. The time period over which you measure the elasticity lengthens. During that long time. New models such as four wheel drive cargo vans appear.
- 2. What can you conclude about the price elasticity of demand in each of the following statements?
- “The pizza delivery business in this town is very competitive. I’d lose half my customers if I raised the price by as little as 10%.”
- “I owned both of the two Jerry Garcia autographed lithographs in existence. I sold one of eBay for a high price. But when I sold the second one, the price dropped by 80%.
- “My economics professor has chosen to use the Case, Oster, & Fair textbook for this class. I have no choice but to buy this book”
- “I always spend a total of exactly $10 per week on coffee”
Q.3. Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her and why? Be able to explain your answer
Q.4.a) A 10% increase in the quantity of spinach demanded results from a 20% decline in its price. What is the price elasticity of demand for spinach ?
- b) A 20% increase in the quantity of pizza demanded results form a 10% decline in its price. What is the price elasticity of demand for pizza?
- 5. Example 1: You are given market data that says when the price of pizza is $4, the quantity demanded of pizza is 60 slices .When the price of pizza is $2, the quantity demanded of pizza is 80 slices. Calculate the price elasticity of demand and interpret what that number means.
- 6. When the price of CD increased from $20 to $22, the quantity of CDs demanded decreased from 100 to 87. What is the price elasticity of demand for CDs? Interpret your answer?