Question

1. Assume the price of Super Bowl Tickets increases by 20% and the quantity demanded changes by 2%.
a. What is the price elasticity of demand for Super Bowl Tickets?
b. Is it elastic, inelastic, or unit elastic?

2. When the price of Lays Potato chips decreases by 5%, the quantity demanded for them changes by 15%.
a. What is the price elasticity of demand for Lays Potato Chips?
b. Is it elastic, inelastic, or unit elastic?

3. Assume demand for a Snickers bar is unit elastic. If the price of a Snickers bar were to increase by 4%, what would happen to the quantity demanded?

4. On the way to work you notice the price of gasoline is $3.25 per gallon. At that price the gas station sells 1000 gallons per hour. On the way home, you notice the price of gasoline has risen to $4.00 per gallon, and at that price the gas station sells 950 gallons per hour.
a. What is the price elasticity of demand for gasoline?

5. Suppose you work for the college bookstore. The current price of a GSU t-shirt is $15, and the bookstore normally sells 200 per week. The elasticity of demand for t-shirts is estimated to be 0.75. In an attempt to raise revenue, the bookstore is considering raising the price to $16.50, a 10% increase.
a. By how much will quantity demanded change for GSU t-shirts?

Answer 1

Answer 1.

Change in Price = 20%

Change in Quantity Demanded = 2%

Price Elasticity of Demand = Change in Quantity Demanded / Change in Price = 2 / 10

Price Elasticity of Demand = 0.10

Since Price Elasticity of Demand is less than 1, demand is inelastic.

Answer 2.

Change in Price = 5%

Change in Quantity Demanded = 15%

Price Elasticity of Demand = Change in Quantity Demanded / Change in Price = 15 / 5

Price Elasticity of Demand = 3.0

Since Price Elasticity of Demand is greater than 1, demand is elastic.

Answer 3.

When demand is unit elastic any change in price causes an equal proportional change in quantity demanded.

Therefore, If the price of a Snickers bar were to increase by 4%, the quantity demanded will decline by 4%.

Answer 4.

We can find the Price Elasticity of Demand using the mid-point formula.

Price elasticity of demand = (Q2 – Q1) / [(Q2 + Q1) / 2] / (P2 – P1) / [(P2 + P1) / 2]

P1 = 3.25; Q1 = 1000; P2 = 4.00 ; Q2 = 950

Price elasticity of demand = (950 – 1000) / [(950 + 1000) / 2] / (4 – 3.25) / [(4 + 3.25) / 2]

Price elasticity of demand = 0.50

Answer 5.

Price Elasticity of Demand = 0.75

Change in Price = 10%

Price Elasticity of Demand = Change in Quantity Demanded / Change in Price

0.75 = Change in Quantity Demanded / 10

Change in Quantity Demanded = 10 * 0.75

Change in Quantity Demanded = 7.5%

Quantity demanded will decline by 7.5%