Chapter 4

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

Explain why the coffee shop manager should measure elasticity using the mid- point method in his calculations.

You have been hired by the government of Kenya, which produces a lot of coffee, to examine the supply of gourmet coffee beans. Suppose you discover that the price elasticity of supply is \(0.85 .\) Explain this figure to the Kenyan government.

You have noticed that the price of tickets to your university's basketball games keeps increasing but the supply of tickets remains the same. Why might supply be unresponsive to changes in price?

Which will have a more price-elastic supply over six months: real estate in downtown Manhattan or real estate in rural Oklahoma? Explain your reasoning.

Certain skilled labor, such as hair cutting, requires licensing or certification, which is costly and takes a long time to acquire. Explain what would happen to the price elasticity of supply for haircuts if this licensing requirement were removed.

Although we could describe both the cross-price elasticity of demand between paper coffee cups and plastic coffee lids and the cross-price elasticity of demand between sugar and artificial sweeteners as highly elastic, the first cross-price elasticity is negative and the second is positive. What is the reason for this?

Name two related goods you consume which would have a positive cross-price elasticity. What happens to your consumption of the second good if the price of the first good increases?

Name two related goods you consume which would have a negative cross-price elasticity. What happens to your consumption of the second good if the price of the first good increases?

Name a good you consume for which your income elasticity of demand is positive. What happens when your income increases?