ONLINECO 

Exercise 1-7.Chapter 5.Elasticity and its application. Gregory Mankiw. Principles of Economics .

 

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? A. Required textbooks or mystery novels. B. Beethoven recordings or classical music recordings in general. C. Heating oil during the next six months or heating oil during the next five years. D. Root beer or water.

 

2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston A. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations.) B. Why might vacationers have different elasticity than business travelers?

 

3. Suppose that your demand schedule for compact discs is as follows: Use the midpoint method to calculate your price elasticity of demand as the price of compact discs increases from $8 to $10 if (i) your income is $10,000, and (ii) your income is $12,000. b. Calculate your income elasticity of demand as your income increases from $10,000 to $12,000 if (i) the price is $12, and (ii) the price is $16.

 

4. Emily has decided always to spend one-third of her income on clothing. A. What is her income elasticity of clothing demand? b. What is her price elasticity of clothing demand?

 

5. The New York Times reported (Feb.17, 199, p.25) that subway ridership declined after a fare increase: “There were nearly four million fewer riders in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than in previous December, a 4.3 percent decline.”a. Use these data to estimate the price elasticity of demand for subway riders. a. Use these data to estimate the price elasticity of demand for subway riders. b. According to your estimate, what happens to the Transit Authority’s revenue when the fare rises?

 

6. Two drivers- Tom and Jerry-each drive up to a gas station. Before looking at the price, each places an order. Tom says, “I’d like 10 gallons of gas.” Jerry says, “I’d like $10 worth of gas.” What is each driver’s price elasticity of demand?

 

7. Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticity help to explain phenomenon?