Please show work so i can learn how you did it. Thank you. 13. If a 20% increase
ID: 1173659 • Letter: P
Question
Please show work so i can learn how you did it. Thank you.
13. If a 20% increase in the price of gas causes a 35% decrease in the demand for standard sized autos, then the cross-price elasticity of demand is:
14. If the price elasticity of demand of gasoline is 0.9, then a 15% increase in quantity demanded is caused by a:
15. A 10% increase in the price of 40 inch LCD televisions which have a price elasticity of 0.6 will cause a:
16. A business newscast claims that the median home price of existing homes fell from $275000 to $195000. Over the same time period the quantity of these homes sold also fell from 3150000 to 2950000. Using the arc elasticity formula, calculate the arc elasticity implied.
Explanation / Answer
Use the formula for own price elasticity ed = % change in quantity demanded of x / % change in price of x
Use the formula for cross price elasticity ed = % change in quantity demanded of x / % change in price of y
13) Given that there is a 20% increase in the price of gas and therefore there is a 35% decrease in the demand for standard sized autos. Hence cross-price elasticity of demand = -35%/20% = -1.75
14) Given that the price elasticity of demand of gasoline is 0.9, and there is a 15% increase in quantity demanded. Then the own price elasticity ed = % change in quantity demanded of gasoline / % change in price of gasoline
-0.9 = 15%/% change in price of gasoline
% change in price of gasoline = 15%/-0.9 = 16.67%
15) -0.6 = % change in quantity demanded of LCD/10%
% change in quantity demanded of LCD = -0.6*10% = -6%
Hence there is fall in quantity demanded by 6%
16) According to the mid-point or arc elasticity formula, the price elasticity of demand for a product is given by:
Ed = (Q2 – Q1) / [(Q2 + Q1)/2] / (P2 – P1) / [(P2 + P1)/2]
We have P1 = $275000 , P2 = $195000, Q1 = 3150000 and Q2 = 2950000. This gives elasticity = -0.19
Q1 Q2 P1 P2 Q2-Q1 (Q2+Q1)/2 %Q P2-P1 (P1+P2)/2 %P Ed 3150000.00 2950000.00 275000.00 195000.00 -200000.00 3050000.00 -6.56 -80000.00 235000.00 -34.04 0.19