ECON 213 Problem Set ch. 4 Liberty University Solution

One of the more important business applications of demand elasticity is the relationship between price and total revenue. For each of the following three scenarios, specify whether demand is elastic, inelastic, or unitary elastic.

Your local movie theater earns a total revenue of \$40,000 per month when the price of a movie ticket is \$8, and it earns a total revenue of \$35,000 when the price of a movie ticket is \$10.

When your local Internet service provider increased its monthly charge from \$40 to \$50, the number of subscribers fell from 2,000 to 1,800.

Last month, your local coffee shop charged \$4 for a cappuccino and sold 150 cappuccinos. This month, it increased the price of a cappuccino to \$5 and is on track to sell 120 cappuccinos.

The figures below depict four different demand curves, which range from perfectly inelastic to perfectly elastic. Match each good with the appropriate demand curve.

A local pizzeria sells 500 large pepperoni pizzas per week at a price of \$20 each. Suppose the owner of the pizzeria tells you that the price elasticity of demand for his pizza is -2, and he asks you for advice. He wants to know two things. First, how many pizzas will he sell if he cuts his price by 10%? Second, how will his revenue be affected?

If he cuts his price by 10%, his sales will increase to pizzas, and his total revenue will increase to \$ .

Suppose a subway line determines it can charge different prices to riders during rush hour and riders who travel on the weekend or during off-peak hours. The subway line’s goal is to increase total revenue. The price elasticity of demand for riders during rush hour is -0.60, and the price elasticity of demand for off-peak travelers is -2.70. Based on the price elasticity of demand for each group of people, how should the subway line adjust its prices? Choose one: A. Lower the price for off-peak travelers, and keep the price the same for riders during rush hour. B. Lower the price for off-peak travelers, and raise the price for riders during rush hour. C. Raise the price for off-peak travelers, and keep the price the same for riders during rush hour. D. Raise the price for off-peak travelers, and lower the price for riders during rush hour.

Please read the article below and use the information in the article to answer this question. For each of the following scenarios, what would happen to total revenue after a price increase? Place each scenario in the correct category.

Put the goods in the correct column, indicating whether the demand for them is elastic or inelastic. Think about each good in terms of the average person's quantity demanded.

Let's say you get a 10% raise. As a result, you decide to buy twice as much Jameson Irish whiskey as before and cut back on rotgut whiskey.

For you, Jameson Irish whiskey is a(n) good, and rotgut whiskey is a(n) good.

The price of a large pizza decreased from \$16.00 to \$12.00. As a result, the quantity demanded of skateboards increased from 260.00 to 280.00.

Using the midpoint formula, what is the percentage change observed for the price of a large pizza? Give your answer to two decimal places.