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problem 1: A newspaper recently lowered its price from 50 cents to 30 cents. As it did, the number of newspapers it sold increased from 240,000 to 280,000.

a) Over this price range what was the elasticity of demand for this newspaper?
b) What was the degree of elasticity for newspaper?
c) A 1% change in the price of the newpaper led to a change in quantity demanded of ______?
d) What happened the newspaper’s total revenue as it dropped its price?

problem 2: Use the points on the graph below to answer the given problems.

1006_demand curves.jpg

a) What is Ep along D1 (from A to B)?
b) Determine the Ep along D2 (from X to Y)?
c) What are the slopes of Demand curves D1 and D2?
d) What can you say regarding the slopes and the elasticities of these demand curves?

problem 3: Economists estimate the short run elasticity of demand for a Chipotle burrito is -2.25.

a) What degree of elasticity does Chipotle burritos exhibit?
b) A 1% change in the price of Chipotle burritos would do what to the quantity demanded of Chipotle burritos?
c) What would happen if Chipotle lowered its burrito price by 2% to its sales (numeric answer)?
d) What happens to Chipotle’s total revenue if it were to lower its price by 2%?

problem 4:
Due to the recent downturn in economic activity, Taz, has seen his hours at work reduced. He used to work 30 hours a week at $13 and hour, but now he works 22 hours.

Due to this change he noticed he purchased more boxed Macaroni and Cheese, up from 1 box a week to 4. He also reduced his purchase of Coke from 2 12-packs to 1 12-pack per week.

a) What is the income elasticity of macaroni and cheese for Taz?
b) What type of good is Macaroni and cheese for Taz?
c) What is the income elasticity of Coke for Taz?
d) What type of good is Coke for Taz?

problem 5: Syesha loves to eat Sunday breakfast at her local Scrambles restaurant. She usually orders a la carte. Her usual breakfast consists of 2 scrambled eggs, 1 piece of bacon and 2 links of sausage. The price of an egg, a sausage link and a piece of bacon are all $1. Thus her breakfast has a price of $5.

Scramble restaurant changes the price of eggs to $1.50. She now orders the following for her breakfast: 1 scrambled egg, 2 pieces of bacon and 1 sausage link.

a) find out the cross price elasticity of eggs and sausage.
b) What type of relationship is there between eggs and sausage?
c) find out the cross price elasticity of eggs and bacon?
d) What type of relationship is there between eggs and bacon?

Microeconomics, Economics

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