01 Jun Question Demanded Price Elasticity
Question
Demanded Price Elasticity
100 $ 5
80 $10
60 $15
40 $20
20 $25
10 $30
1. a. Determine the price elasticity of demand at each
quantity demanded using the arc or midpoint
formula: Percentage change in quantity
demanded¼(Q2Q1)/Q1divided by percentage
change in price¼(P2P1)/P1.
b. Redo exercise 1a using price changes of $10
rather than $5.
2. Plot the price and quantity data given in the
demand schedule of exercise 1. Put price on the vertical
axis and quantity on the horizontal axis. Indicate
the price elasticity value at each quantity
demanded. Explain why the elasticity value gets
smaller as you move down the demand curve.
3. What would a 10 percent increase in the price of
movie tickets mean for the quantity demanded of a
movie theater if the price elasticity of demand was
0.1, 0.5, 1.0, and 5.0?
4. Using the demand curve plotted in exercise 1, illustrate
what would occur if the income elasticity of
demand was 0.05 and income rose by 10 percent. If
the income elasticity of demand was 3.0 and income
rose by 10 percent, what would occur?
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