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PROBLEM SET 2
Problems for Chapter 5
- Complete the following table: The elasticity coefficient is (give range): If price rises, total revenue will (increase/decrease/ remain the same): If price falls, total revenue will (increase/ decrease/ remain the same): If demand is: Elastic Inelastic Unitarily Elastic
- Each table below contains the points (combinations of price and quantity demanded) on a demand curve. Complete each table by computing the total revenue at each point and the price elasticity coefficients. Indicate under “Character of Demand” whether demand is elastic, inelastic, or of unitary elasticity between each price. a. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
ELASTICITY
COEFFICIENT
CHARACTER OF
DEMAND
A $1.00 300 ---- ----
B .90 400 (Between A and B) C .80 500 (Between B and C) D .70 600 (Between C and D) E .60 700 (Between D and E) F .50 800 (Between E and F) G .40 900 (Between F and G) b. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
ELASTICITY
COEFFICIENT
CHARACTER OF
DEMAND
A $.35 6 ---- ----
B .30 9 (Between A and B) C .25 12 (Between B and C) D .20 16 (Between C and D) E .15 20 (Between D and E)
- For the demand curve in each table below, calculate the total revenue at each point. Under “Character of Demand,” indicate whether demand is elastic, inelastic, or of unitary elasticity. a. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 4 ----
B 8 5 (Between A and B) C 6 6 2/3 (Between B and C) D 4 10 (Between C and D) E 2 20 (Between D and E) b. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 100 ----
B 8 120 (Between A and B) C 6 140 (Between B and C) D 4 160 (Between C and D) E 2 180 (Between D and E) c. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 0 ----
B 8 1 (Between A and B) C 6 8 (Between B and C) D 4 22 (Between C and D) E 2 50 (Between D and E) d. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 10 ----
B 8 15 (Between A and B) C 6 20 (Between B and C) D 4 25 (Between C and D) E 2 30 (Between D and E)
Selected Answers
- YOU figure this out using the textbook and class notes!
- a. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
ELASTICITY
COEFFICIENT
CHARACTER OF
DEMAND
A $1.00 300 $300 ---- ----
B .90 400 360 (Between A and B) 2.7 Elastic C .80 500 400 (Between B and C) 1.9 Elastic D .70 600 420 (Between C and D) 1.4 Elastic E .60 700 420 (Between D and E) 1.0 Unitary F .50 800 400 (Between E and F) 0.7 Inelastic G .40 900 360 (Between F and G) 0.5 Inelastic b. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
ELASTICITY
COEFFICIENT
CHARACTER OF
DEMAND
A $.35 6 $2.10 ---- ----
B .30 9 2.70 (Between A and B) 2.60 Elastic C .25 12 3.00 (Between B and C) 1.57 Elastic D .20 16 3.20 (Between C and D) 1.29 Elastic E .15 20 3.00 (Between D and E) 0.78 Inelastic
a. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 4 $40 ----
B 8 5 40 Unitary C 6 6 2/3 40 D 4 10 40 E 2 20 40 b. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 100 $1000 ----
B 8 120 960 Inelastic C 6 140 840 D 4 160 640 E 2 180 360
c. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 0 $0 ----
B 8 1 8 Elastic C 6 8 48 D 4 22 88 E 2 50 100 d. POINT PRICE
QUANTITY
DEMANDED
TOTAL
REVENUE
CHARACTER OF
DEMAND
A $10 10 $100 ----
B 8 15 120 Elastic C 6 20 120 Unitary D 4 25 100 Inelastic E 2 30 60 Inelastic
- E = 3.545, which implies a relatively elastic demand.
- a. inelastic. b. elastic.
- a. Quantity will fall by 20% (or by .20). b. Quantity will rise by 30% (or by .30).
- a. Coffee Tea Units Total Utility Marginal Utility Units Total Utility Marginal Utility 0 0 -- 0 0 -- 1 50 50 1 66 66 2 90 40 2 123 57 3 120 30 3 174 51 4 138 18 4 216 42 5 150 12 5 246 30 6 160 10 6 273 27 7 169 9 7 291 18 8 177 8 8 306 15 9 184 7 9 315 9 10 190 6 10 321 6 b. Diminishing marginal utility theoretically explains why the demand curve is downward-sloping.
