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Elasticity Practice Sheet Answers

The document contains practice problems related to elasticity in economics, including calculations for price elasticity of demand and supply, cross-price elasticity, and income elasticity. It discusses the implications of these calculations on the nature of goods (normal, inferior, substitutes, complements) and their elasticities. Each question requires showing work and providing explanations for the conclusions drawn.

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105 views

Elasticity Practice Sheet Answers

The document contains practice problems related to elasticity in economics, including calculations for price elasticity of demand and supply, cross-price elasticity, and income elasticity. It discusses the implications of these calculations on the nature of goods (normal, inferior, substitutes, complements) and their elasticities. Each question requires showing work and providing explanations for the conclusions drawn.

Uploaded by

junyuzhanp1
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Micro Topics 2.3, 2.4 and 2.

5
Elasticity Practice Sheet
Answer the questions. Be sure to explain and/or show your work.
1. The price of burgers increased from $4.00 to $4.40 and the quantity demanded decreased from 50
to 30 units per hour. Calculate the coefficient for price elasticity of demand. Show your work. ​-4 =
-40%/+10% = -.4/.1. Change in quantity is -40%. Change of price is +10%.
2. Given your answer to question #1, is the demand for burgers perfectly elastic, relatively elastic, unit
elastic, relatively inelastic, or perfectly inelastic? Explain how you determined your answer. ​The
demand for burgers is relatively elastic because the absolute value of the elasticity of demand
coefficient is greater than 1.
3. Assume, instead, that the quantity of burgers demanded remained at 50 (after the price change in
question #1). Would the demand for burgers be perfectly elastic, relatively elastic, unit elastic,
relatively inelastic, or perfectly inelastic? Explain how you determined your answer. ​The demand
would be perfectly inelastic because the quantity demanded stayed the same after the increase in
price. The elasticity of demand coefficient would be 0.
4. The price of burgers increased from $4 to $4.40 and the quantity supplied increased from 50 to 60
units. Calculate the price elasticity of the supply coefficient. Show your work. ​+2 = +20%/+10%.
Change in quantity is +20%. Change of price is +10%.
5. Given the information in question #4, is the supply of burgers perfectly elastic, relatively elastic, unit
elastic, relatively inelastic, or perfectly inelastic? Explain how you determined your answer.
Relatively elastic. The coefficient of supply is greater than 1 and the percent change in quantity
changed more than the percent change in price.
6. Suppose that the price of burgers decreased from $4.00 to $3.00 and the quantity demanded of
pizza decreased by 50%. Calculate the cross-price elasticity of demand coefficient between burgers
and pizza. Show your work. ​+2 = -50%/-25% = -.5/-.25

7. Given your answer to question #6, are burgers and pizza complements, substitutes, normal goods,
or inferior goods? Explain how you determined your answer. ​The two goods are substitutes since the
cross-price elasticity of demand coefficient is positive.

8. If the demand for pizza is relatively inelastic, will an increase in the price of pizza cause the total
revenue for pizza restaurants to increase, decrease, or stay the same. Explain. ​Increase. Demand is
inelastic, so quantity falls only a little and prices increases more. This is the total revenue test.
9. Assume that incomes increased by 40% and the quantity demanded of hot dogs decreased by 40%.
Calculate the income elasticity of hot dogs. Show your work. ​-1 = -40%/+40%

10. Given your answer to question #9, are hot dogs a complement, substitute, normal good, or inferior
good? Explain how you determined your answer. ​Inferior good since the INCOME coefficient is
negative and the quantity purchased decreased when income increased.

11. Given the information in question #9, is the demand for hot dogs be perfectly elastic, relatively
elastic, unit elastic, relatively inelastic, or perfectly inelastic? Explain how you determined your
answer. ​This is a trick question. The answer is impossible to determine with the given info. The
change in income does not indicate the elasticity of demand (or supply). It can only be used to
identify if the good is a normal good or inferior good.
© Copyright Jacob Clifford 2020
Teachers- Do NOT use this in your classroom. ​Contact me​ if you want to use this resource with your students

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