Chapter 16

Why do we always insert a negative sign in front of demand elasticity?

What is meant by perfect inelasticity and infinite elasticity?

Define elasticity of demand.

At 25 cents apiece, Mr. Krinsky sells 100 chocolate bars per week. If he drops his price to 20 cents, his weekly sales will increase to 110 bars. Is the demand for chocolate bars elastic or inelastic?

Suppose you are given the linear demand function in Table1. $$\begin{array}{|lll|}\hline \mathrm{Q}& \mathrm{P}& \\ 3& 7& \\ 4& 6& \\ 5& 5& \text{ Table 1 }\\ 6& 4& \\ 7& 3& \\ \hline\end{array}$$ a) Find the point of unitary elasticity. b) Suppose you were given the general linear equation for demand: $\mathrm{P}=\mathrm{a}+\mathrm{bQ}.$ Use calculus to find the point of unitary elasticity. c) Solve part a) using the information obtained in part b).

What is meant by cross elasticity of demand?

How will the cross elasticity of demand differ, depending upon whether product $\mathrm{A}$ is a complement of or substitute for product $\mathrm{B}$ ?

What are some of the determinants of elasticity of demand?

Describe each of the following situations in terms of demand elasticity. a) You have a cold and the only medicine that can help you used to cost $\mathrm{\$}1.50$ per bottle but now costs $\mathrm{\$}20.00$ a bottle. You buy it anyway. b) At $\mathrm{\$}80$ per ticket you would buy 2 tickets, but scalpers want $\mathrm{\$}100$ a seat for the Stanley cup finals, so you stay at home and watch the games on television. c) Chocolate bars double in price overnight from $10\mathrm{\$}\$to$20 \mathrm{C}$, yet you buy the same number as before.

Using average values find the coefficient of elasticity for the following: $$\begin{array}{|ll|}\hline \text{ Price }& \text{ Quantity }\\ \mathrm{\$}45& 65,000\\ \mathrm{\$}55& 35,000\\ \hline\end{array}$$