Download Econ 111: Principles of Economics

Econ 111: Principles of Economics - Accelerated Treatment
Korinna K. Hansen
Problem Set 2
1. A movie theater estimates that at a price of $ 8.5 per ticket, it will sell an average of 500
tickets per day, while at $ 7.5 per ticket, it will sell 600 tickets per day. What is the price
elasticity of demand for movies at this theater for a price change from $ 7.5 to $ 8.5?
2. State if the following statements are true or false and explain why: (Use graphs where
necessary).
a. The price of winter boots falls from $100 to $90 and quantity demanded rises to 550 units.
With only this information we can conclude nothing about the elasticity of demand for winter
boots.
b. Suppose that the absolute value of the price elasticity of demand for haircuts is 2.5 when there
is a 30 percent increase in quantity demanded. The percentage decrease in price necessary to
increase quantity demanded by 30 percent is 10.5 percent.
c. If the price elasticity of demand for apples is greater than 1 in absolute value, an increase in
apple prices will decrease total revenue from apple sales.
d. If a price increase from $100 to $200 for color television sets increases the quantity supplied of
color television sets from 8,000 to 12,000, the supply elasticity for color television sets in that
price range is 0.6.
e. The cross price elasticity for tennis rackets and tennis balls is negative because when the price
for tennis rackets increases the demand for tennis balls decreases.
f. A leftward shift in the demand curve for strawberries is expected to decrease the equilibrium
quantity exchanged to a greater degree when the supply curve is more elastic.
3. Explain why the elasticity of a straight line demand curve varies from one part of the curve to
another.