Assignment 2
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husnain murtazaAssignment 2
Uploaded by
husnain murtazaAssignment#2
Submission date: 28-10-22
1. 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
2. Suppose that business travelers and vacationers have the following demand for airline tickets
from New York to Boston:
Price Quantity Demanded Quantity Demanded
(business travelers) (vacationers)
150 2,100 1000
200 2,000 800
250 1,900 600
300 1,800 400
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?
3. 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 demanded 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?
4. A price change causes the quantity demanded of a good to decrease by 30 percent, while the
total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?
Explain.
5. Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane
destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following
questions.
a. What happens to the price of coffee beans?
b. What happens to the price of a cup of coffee? What happens to total expenditure on cups of
coffee?
c. What happens to the price of donuts? W
6. Suppose that your demand schedule for DVDs is as follows:
Price Quantity Demanded Quantity Demanded
(income = $10,000) (income = $12,000)
8 40 50
10 32 45
12 24 30
14 16 20
16 8 12
a. Use the midpoint method to calculate your price elasticity of demand as the price of DVDs
increases from $8 to $10 if
(i) your income is $10,000 and
(ii) your income is $12,000.
b. Calculate your income elasticity of demand as your income increases from $10,000 to
$12,000 if (i) the price is $12 and (ii) the price is $16.
7. Maria has decided always to spend one-third of her income on clothing.
a. What is her income elasticity of clothing demand?
b. What is her price elasticity of clothing demand?
c. If Maria’s tastes change and she decides to spend only one-fourth of her income on clothing,
how does her demand curve change? What is her income elasticity and price elasticity now?
