ECON 262
1. What is the concept (not the formula) of:
a. the price elasticity of demand:
b. the income elasticity of demand:
c. cross-price elasticity of demand:
2. If the price elasticity of demand is greater than one, what does that mean?
3. Discuss an economic theory that we talked about in class as to why a good might be very inelastic to a lot of people. Assume there is no brand loyalty - so that can't be your answer!!
4. Draw a demand curve that has a range of prices where the price elasticity of demand is "perfectly inelastic" - what does this mean?
5.
Betty
and Mike own a flour mill and know that a 7% increase in the price of flour
will result in a 5% decline in the quantity demanded of flour.
Therefore, the price elasticity of demand for Betty and Mike’s flour
is ________________?
WORK:
6. A price cut will increase the revenue a firm receives if the demand for its product is ____________________ (with respect to elasticity). Explain.
7. The price elasticity of demand for cheese is -2 if a 10 percent increase in price results in a _____________percent decrease in the demand for the good.
WORK:
8.
The
local pizza place makes such great bread sticks that consumers do not
respond much to a change in the price.
If the owner is only interested in increasing revenue (ceteris
paribus), he should ____________________
9. Answer the questions with respect to the two goods listed.
| Gasoline | Restaurant Meals | |
| 1. Are there good substitutes available? | ||
| 2. Is the good very "necessary" to most people? | ||
| 3. What do you think the price elasticity of demand is for each good? Give it your best guess. | Shorter Run = Longer Run = |
10. If the cross price elasticity of demand is negative, then the two goods
would be ___________________?
Explain:
11. If the income elasticity of demand is equal to -.5, this means that the good is ___________________ and is a(n) ______________________ good.
Explain:
12. What questions do you still have about this material?