I. Suppose that business travellers and vacationers have the following demand for airline tickets from Phnom Penh to Bangkok:
| Quantity Demanded(Business travellers)
| Quantity Demanded (Vacationers)
| 2,100 tickets
| 1,000 tickets
a. As the price of tickets increases from $200 to $250, what is the price elasticity of demand for (i) business travellers (ii) vacationers (use midpoint method in your calculations.). Interpret the price elasticities you find in (i) and (ii) b. Why might vacationers have a different elasticity from business travellers?
II. Consider public policy aimed at smoking.
a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?
b. Studies also find that teenagers have higher price elasticity than do adults. Why might this be true?
III. Suppose a firm sells 70 units when the price is $6, but sells 80 units when the price falls to $4. a. Calculate the firm's revenue at each of the prices.
b. Use the total-revenue test to determine whether demand is elastic or inelastic over this range. Verify your previous answer by calculating the elasticity of demand using the midpoint formula.
IV. The income elasticities of demand for movies, dental services, and clothing have been estimated to be +3.4, +1.0, and +0.5 respectively. Interpret these coefficients. What does it mean if the income elasticity coefficient is negative?
V. Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and D is 5.4. What can you conclude about how products A and B are related? Products C
VI. Suppose the market for watermelons can be described by the graph below.
a. If Sok is willing to pay as much as $8 for a...
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