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Principles HWsolution Ch5

This document contains suggested answers for problems in Mankiw's economics textbook. Problem 2 discusses calculating price elasticities of demand for business travelers and vacationers when airline ticket prices rise. Problem 7 defines one consumer as having a price elasticity of zero and another of one. Problem 11 uses a diagram to show how an increase in demand affects equilibrium price and quantity in markets with inelastic and elastic supply.

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37 views1 page

Principles HWsolution Ch5

This document contains suggested answers for problems in Mankiw's economics textbook. Problem 2 discusses calculating price elasticities of demand for business travelers and vacationers when airline ticket prices rise. Problem 7 defines one consumer as having a price elasticity of zero and another of one. Problem 11 uses a diagram to show how an increase in demand affects equilibrium price and quantity in markets with inelastic and elastic supply.

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Suggested Answers for Mankiw, Chapter 5, Problem 2, 7, 11

2.

a.

For business travelers, the price elasticity of demand when the price of
tickets rises from $200 to $250 is [(2,000 1,900)/1,950]/[(250 200)/225]
= 0.05/0.22 = 0.23. For vacationers, the price elasticity of demand when
the price of tickets rises from $200 to $250 is [(800 600)/700] / [(250
200)/225] = 0.29/0.22 = 1.32.

b.

The price elasticity of demand for vacationers is higher than the elasticity
for business travelers because vacationers can choose more easily a
different mode of transportation (like driving or taking the train). Business
travelers are less likely to do so because time is more important to them
and their schedules are less adaptable.

7.

Tom's price elasticity of demand is zero, because he wants the same quantity
regardless of the price. Jerry's price elasticity of demand is one, because he spends
the same amount on gas, no matter what the price, which means his percentage
change in quantity is equal to the percentage change in price.

11.

a.

As Figure 3 shows, the increase in demand increases both the equilibrium price and the
equilibrium quantity in both markets.

b.

In the market for beachfront resorts (with inelastic supply), the increase in
demand leads to a relatively large increase in the equilibrium price and a
small increase in the equilibrium quantity.

c.

In the market for automobiles (with elastic supply), the increase in demand
leads to a relatively large increase in the equilibrium quantity and a small
increase in equilibrium price.

d.

In both markets, total consumer spending rises, because both equilibrium


price and equilibrium quantity rise.

Figure 3

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