Bahal

a,KarrenChar
magneD. BSBAHRM II
Basi
cMi cr
oeconomics Sept
ember17,2020
Sel
fRev
iew(
Elast
ici
tyandi
tsAppl
i
cat
ions)

1.Aspor
ti
nggoodsst
orehasest
imat
edt
hedemandcur
vef
orbr
andA
r
unni
ngshoesasafunct
ionofpr
ice.Uset
hef
oll
owi
ngdi
agr
am t
oanswer
t
hequest
ionst
hatf
oll
ow:

Cal
cul
atedemandelast
ici
tyusi
ngt
hemi
dpoi
ntf
ormul
abet
weenpoi
ntsA
andB;
CandD; EandF.

ANSWERS:
•POI
NTSAandB

Ver
sion1of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
20-
10
= ×100%
10+20/
2
10
= ×100%
15
%changei
nQd=66.
67%

Ver
sion2of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
500-
600
= ×100%
600+500/
2
-
100
= ×100%
550
%changei
nQd=-
18.
18%
%changei
nPr
ice

P2-
P1
%changei
nQP = ×100%
P1+P2/
2
20-
10
= ×100%
10+20/
2
10
= ×100%
15
%changei
nQP =66.
67%

Ver
sion1ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
66.
67%
=
66.
67%
Pr
iceEl
ast
ici
tyofDemand=1

Ver
sion2ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
-18.
18%
=
66.
67%
Pr
iceEl
ast
ici
tyofDemand=-0.
27

•POI
NTSCandD

Ver
sion1of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
40-
30
= ×100%
30+40/
2
 10
= ×100%
35
%changei
nQd=28.
57%

Ver
sion2of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
300-
400
= ×100%
400+300/
2
-
100
= ×100%
350
%changei
nQd=-
28.
57%

%changei
nPr
ice

P2-
P1
%changei
nQP = ×100%
P1+P2/
2
40-
30
= ×100%
30+40/
2
10
= ×100%
35
%changei
nQP =28.
57%

Ver
sion1ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
28.
57%
=
28.
57%
Pr
iceEl
ast
ici
tyofDemand=1

Ver
sion2ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
 -28.
57%
=
28.
57%
Pr
iceEl
ast
ici
tyofDemand=-1

•POI
NTSEandF

Ver
sion1of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
60-
50
= ×100%
50+60/
2
10
= ×100%
55
%changei
nQd=18.
18%

Ver
sion2of%changei
nQd

Q2-
Q1
%changei
nQd= ×100%
Q1+Q2/
2
100-
200
= ×100%
200+100/
2
-
100
= ×100%
150
%changei
nQd=-66.
67%

%changei
nPr
ice

P2-
P1
%changei
nQP = ×100%
P1+P2/
2
60-
50
= ×100%
50+60/
2
10
= ×100%
55
%changei
nQP =18.
18%
Ver
sion1ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
18.
18%
=
18.
18%
Pr
iceEl
ast
ici
tyofDemand=1

Ver
sion2ofPr
iceEl
ast
ici
tyofDemand

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
-66.
67%
=
18.
18%
Pr
iceEl
ast
ici
tyofDemand=-3.
67

2.
Fil
li
nthemi
ssi
ngamount
sint
hef
oll
owi
ngt
abl
e.

% Change i
n %changei
n El
ast
ici
ty
Pr
ice Quant
it
y

I
cecr
eam +10% -
12% -
1.2

Popcor
n -
20% +10% -
.5

Ci
nema +15% -
15% -
1.0
Ti
cket
s

Chi
cken +10% +12% +1.
2

BeefMeat -
15% -
10% +0.
67
SOLUTI
ONS:
1st
%changei
nQ
El
ast
ici
ty=
%changei
nP
-
12%
=
10%
El
ast
ici
ty=-
1.2
2nd
%changei
nQ=(
%changei
nP)(
Elast
ici
ty)

=(
-20%)(
-0.
5)

%changei
nQ=+10%

3r
d
%changei
nQ
%changei
nP=
El
asti
cit
y
-15%
=
-
1.0

%changei
nP=+15%
4t
h
%changei
nQ=(%changei
nP)(
Elast
ici
ty)
=(+10%)(
+1.
2)
%changei
nQ=12%

5t
h

%changei
nQ
El
ast
ici
ty=
%changei
nP
-
10%
=
-
15%
El
ast
ici
ty=-
1.2

3.I
fthepri
ceofagoodincr
easesby8%andthequant
it
ydemandeddecreasesby12%,
whatist
hepri
ceel
asti
cit
yofdemand?Isi
tel
asti
c,i
nel
asti
coruni
tar
yel
astic?
ANSWER:

%changei
nQd
Pr
iceEl
ast
ici
tyofDemand=
%changei
nP
-12%
=
+8%
Pr
iceEl
ast
ici
tyofDemand=-1.
5

I
nelast
ic— becausethechangeinpr
ice(whichact
uall
yi ncr
eased)l
edt
oasmal
l
er
per
centagechangeindemand(t
he%changeinQddecreased).

4.A10per centi
ncr
easeini
ncomebr i
ngsabouta15per
centdecr
easei
nthedemand
foragood.Whatisthei
ncomeelast
ici
tyofdemandandi
sthegoodanormalgoodor
aninf
eri
orgood?Beabletoexpl
ainy
ouranswer.

ANSWER:

%changei
nQd
I
ncomeEl
ast
ici
tyofDemand=
%changei
nY
-15%
=
+10%
I
ncomeEl
ast
ici
tyofDemand=-1.
5

I
NFERIORGOOD— forasy oucouldov er
lysee,thedemand( % changeinQd)f al
l
sdownvwit
h
r
espectt
otheri
seinconsumer '
sincome.Asidefrom i
t,theIncomeEl ast
ici
tyofDemandcame
t
obenegati
ve,
whichi
sanot heri
ndicat
ionofbeinganinferi
orgood.