Download Elasticity of Demand - Iowa State University

Chapter 5: Elasticity
Supplemental Instruction
Iowa State University
Leader:
Course:
Instructor:
Date:
Veronica
Econ 101
Kreider
10-14-14
1. _________________is the sensitivity of quantity demanded to price; the percentage change in quantity
demanded caused by a one percent change in price.
2. The price elasticity of demand (ED) can be calculated using what formula?
3. Fill in the Chart
The demand curve for is defined to be: Qd = 100 – 5p
The supply curve for is defined to be: Qs = 5p
Price Quantity
Quantity
Change in Average
(p)
Supplied
Demanded
Q
Q
Change in Average Elasticity of
P
P
Demand
0
3
6
9
12
4.
a.
P (per bottle)
$1.00
$1.50
$2.50
$3.00
A
a. Is this a straight-line demand curve? How do you know?
QD (bottles per week)
500
400
200
100
b. Calculate the price elasticity of demand for bottled water for a price rise from $1.00 to $1.50. Is
demand elastic or inelastic for this price change?
c.
Calculate the price elasticity of demand for a price rise from $2.50 to $3.00. Is demand elastic or
inelastic for this price change?
5. Fill in the Blank:
a. A rise in price should _______________ total revenue on bottled water when demand is inelastic,
and_________________ total revenue when demand is elastic.
Effect of Price Increase:
Effect of Price Decrease:
Demand Elasticity
___________________ (ED < 1) total revenue _________________
total revenue_________________
___________________ (ED = 1) total revenue _________________
total revenue _________________
___________________ (ED > 1) total revenue _________________
total revenue__________________
___________________ (ED = 0)
___________________ (ED = ∞ )
b. Elasticity of demand varies along a downward-sloping straight-line demand curve. More
specifically, demand becomes ______elastic (ED gets _____________) as we move downward
and rightward.
c. At any point on a demand curve, seller’s __________________ is the area of a rectangle with
height equal to price and width equal to quantity demanded.
d. An increase in price _______________ total revenue when demand is inelastic,
and______________ total revenue when demand is elastic.
e. When close substitutes are available for a product, demand tends to be more ________________.
f. Goods we regard as necessities tend to have _________ demand than goods we regard as luxuries.
g. When spending on a good makes up a larger proportion of a families’ budget, demand tends to be
more _________________.
1060 Hixson-Lied Student Success Center  515-294-6624  [email protected]  http://www.si.iastate.edu