04 Jun Question 1. Use the graph below to answer the following questions. (26 points)
Question
1. Use the graph below to answer the following questions. (26 points)
What is the absolute value of the price elasticity of demand between P=100 and P=80? (5 points)
What is the absolute value of the price elasticity of demand between P=40 and P=20? (5 points)
2. Use the graph below to answer the following questions. (36 points – each part is worth 4 points)
Elasticity values are greater than 1 in absolute value in the portion of the graph described by letter Elasticity values are less than 1 in absolute value in the portion of the graph described by letter _ _.
Elasticity values are exactly equal to 1 in absolute value in the portion of the graph described by letter _ _.
The inelastic portion of the graph is the area described by letter _ _.
The elastic portion of the graph is the area described by letter _
The unit elastic portion of the graph is the area described by letter _ _.
Total revenue is maximized over the portion of the graph described by letter _ _.
Total revenue is increasing when price increases over the portion of the graph described by letter _ _.
Total revenue is decreasing when price increases over the portion of the graph described by letter _
3. Suppose the demand for guitars in State College is given by Qd = 8,000 – 10P where Qd is the quantity demanded, and P is the price of guitars. Also, suppose the supply of guitars is given by Qs = 30P – 2000, where Qs is the quantity supplied of guitars. (38 points)
a) Calculate the equilibrium price of guitars and the equilibrium quantity of guitars in State College. Show your work. (10 points)
b) Suppose the actual price of guitars is $500. Determine if there is a shortage, a surplus, or if the market is in equilibrium at a price of $500. If there is a shortage or surplus, calculate how much the shortage or surplus is. (8 points)
c) Given your answer to b), is the price of guitars likely to rise, fall, or stay the same? (4 points)
D SUPPOSE GUITARS AND STRINGS ARE COMPLIMENTS……….
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