town.Their rent may be higher and the transportation costs will be higher. for admission is completely price inelastic.As evidence she notes that while the university has doubled its tuition (in real terms)over the past 15 years,neither the number nor quality of students applying has decreased.Would you accept this argument?Explain briefly.(Hint:The official makes an assertion about the n,but do she eactually observe a demand curve?What else could be going on?) If demand is fixed,the individual firm (a university)may determine the shape of the demand curve it faces by raising the price and observing the change in quantity sold.The university official is not observing the entire demand curve.but rather only the equilibrium price and quantity over the last 15 years.If demand is shifting upward,as supply pward. demand oould have any elasticity.See Figure 2.7.for example)Deman could be shifting upward because the value of a college education has increased and students are willing to pay a high price for each opening. More market research would be required to support the conclusion that demand is completely price inelastic. Price S Quantity Figure2.10 11.Suppose the demand curve for a product is given by Q=10-2P+P.where Pis the price of the product and P.is the price of a substitute good.The price ofthe substitute good is S2.00.a.Suppose P=S1.00.What is the price elasticity of demand?What is the cross-price elasticity ofdemand?
town. Their rent may be higher and the transportation costs will be higher. 10. In a discussion of tuition rates, a university official argues that the demand for admission is completely price inelastic. As evidence she notes that while the university has doubled its tuition (in real terms) over the past 15 years, neither the number nor quality of students applying has decreased. Would you accept this argument? Explain briefly. (Hint: The official makes an assertion about the demand for admission, but does she actually observe a demand curve? What else could be going on?) If demand is fixed, the individual firm (a university) may determine the shape of the demand curve it faces by raising the price and observing the change in quantity sold. The university official is not observing the entire demand curve, but rather only the equilibrium price and quantity over the last 15 years. If demand is shifting upward, as supply shifts upward, demand could have any elasticity. (See Figure 2.7, for example.) Demand could be shifting upward because the value of a college education has increased and students are willing to pay a high price for each opening. More market research would be required to support the conclusion that demand is completely price inelastic. S1976 Price Quantity S1986 S1996 D1996 D1986 D1976 Figure 2.10 11. Suppose the demand curve for a product is given by Q=10-2P+Ps, where P is the price of the product and Ps is the price of a substitute good. The price of the substitute good is $2.00. a. Suppose P=$1.00. What is the price elasticity of demand? What is the cross-price elasticity of demand?
First you need to find the quantity demanded at the price of $1.00. Q=10-2(1+210. Price elasticity of demand 006-2)=-品=02 P△O Crosprice elasticity of demand= 4=60=02 Suppose the price of the good,P,goes to $2.00.Now what is the price elasticity of demand?What is the cross-price elasticity of demand? First you need to find the quantity demanded at the price of $2.00. Q=10-22+2=8. Price elasticity of demand= 6-6-2=-05 P△Q」 Cro-price elasticity ofdemand=(025 12.Suppose that rather than the declining demand assumed in Example 2.8,a decreas e in the cost of co production causes the ply curve to shift to the right by 40 percent.How will the price ofcopper change If the supply curve shifts to the right by40%then supplied will be 140 perent of the old quantity supplied at every price. The new supply curve is therefore Q=1.4*(-4.5+16P)=6.3+22.4P.To find the new equilibrium price of copper,set the new supply equal to demand so that-6.3+22.4P=13.5-8P. Solving for price results in P=65 cents per pound for the new equilibrium price.The price decreased by 10cents per pound,or 13.3% 13.Suppose the demand for natural gas is perfectly inelastic.What would be the effect,ifany,of natural gas price controls? If the demand for natural gas is perfectly inelastic.then the demand curve is vertical.Consume price this quantity the quantity demanded
First you need to find the quantity demanded at the price of $1.00. Q=10-2(1)+2=10. Price elasticity of demand = P Q Q P = 1 10 (−2) = − 2 10 = −0.2. Cross-price elasticity of demand = Ps Q Q Ps = 2 10 (1) = 0.2. b. Suppose the price of the good, P, goes to $2.00. Now what is the price elasticity of demand? What is the cross-price elasticity of demand? First you need to find the quantity demanded at the price of $2.00. Q=10-2(2)+2=8. Price elasticity of demand = P Q Q P = 2 8 (−2) = − 4 8 = −0.5. Cross-price elasticity of demand = Ps Q Q Ps = 2 8 (1) = 0.25. 12. Suppose that rather than the declining demand assumed in Example 2.8, a decrease in the cost of copper production causes the supply curve to shift to the right by 40 percent. How will the price of copper change? If the supply curve shifts to the right by 40% then the new quantity supplied will be 140 percent of the old quantity supplied at every price. The new supply curve is therefore Q’ = 1.4*(-4.5+16P) = -6.3+22.4P. To find the new equilibrium price of copper, set the new supply equal to demand so that –6.3+22.4P=13.5-8P. Solving for price results in P=65 cents per pound for the new equilibrium price. The price decreased by 10 cents per pound, or 13.3%. 13. Suppose the demand for natural gas is perfectly inelastic. What would be the effect, if any, of natural gas price controls? If the demand for natural gas is perfectly inelastic, then the demand curve is vertical. Consumers will demand a certain quantity and will pay any price for this quantity. In this case, a price control will have no effect on the quantity demanded