Homework Set 3 Spring 2015

Business Programs Economics- Homework Set 4 Dr. Demetri Tsanacas 1. When the price of compact discs (CDs) increased from 10 to 11, the quantity of CDs demanded decreased from 100 to 87. What is the price elasticity of demand for CDs Is demand elastic or inelastic 2. Explain why the demand for residential natural gas (gas used for heating, cooling, and cooking) is more elastic than the demand for residential electricity. 3. Would you expect the demand for a specific brand of running shoe to be more elastic or less elastic than the demand for running shoes in general Why 4. For each of the following goods, indicate whether you expect demand to be inelastic or elastic, and explain your reasoning Opera Local phone service Foreign travel Movies Eggs Milk 5. You observe a positive relationship between the price that your store charges for CDs and the total revenue from CDs. Is the demand for your CDs elastic or inelastic 6. Suppose that at the current price, the price elasticity of demand for a campus film series is 1.40. If the objective of the film society is to maximize its total revenue (price times the number of tickets sold), should it increase or decrease price 7. As the head of a state chapter of MADD (Mothers Against Drunk Driving), you are to speak in support of policies that discourage drunk driving. The number of highway deaths among young adults, which is roughly proportional to the groups beer consumption, is initially 100 per year. You have scheduled a news conference to express your support for a beer tax that will increase the price of beer by 10. The price elasticity of demand for beer is 1.30. Complete the following statement The beer tax will decrease the number of highway deaths among young adults by about ____ per year. 8. When the price of paper increases from 100 per ton to 104 per ton, the quantity supplied increased from 200 tons per day to 220 tons per day. What is the price elasticity of supply 9. You are a tax