Question

In: Economics

Price per DVD Quantity of DVD's demanded Quantity of DVD's supplied $ 8 18 DVD's 7DVD's...

Price per DVD	Quantity of DVD's demanded	Quantity of DVD's supplied
$ 8	18 DVD's	7DVD's
9	16	10
10	13	13
11	10	20
12	9	24
13	7	26
14	5	29

a) Draw the demand and supply curves on the same graph.

b) What is the equilibrium price and quantity demanded and supplied of DVD's?

c) Would the price of $11 create a surplus or shortage of DVD's and by how many DVD's?

d) What happens to the demand for DVD's if the income of the people increases?

e) Show the difference on the same graph.

f) Calculate price elasticity of demand when price changes from $11 to $14. Is price elasticity of demand for DVD's elastic or inelastic?

2. The demand for movie tickets increases from 210 tickets per day to 280 tickets per day with the fall in the price from $12 a ticket to $8 a ticket.

a) Calculate the price elasticity of demand for movie tickets.

b) Is demand for movie tickets elastic or inelastic?

Solutions

Expert Solution

a) Draw the demand and supply curves on the same graph.

Graph is drawn below.

b) What is the equilibrium price and quantity demanded and supplied of DVD's?

The equilibrium price is $10 and the equilibrium quantity traded is 13 DVDs

c) Would the price of $11 create a surplus or shortage of DVD's and by how many DVD's?

At a price of $11, Qd = 10 and Qs = 20 so there is a surplus of 10 DVDs

d) What happens to the demand for DVD's if the income of the people increases?

It will increase as demand function is likely to shift outwards as income increases considering the DVD to be a normal good

e) Show the difference on the same graph.

Graph is shown below

f) Calculate price elasticity of demand when price changes from $11 to $14. Is price elasticity of demand for DVD's elastic or inelastic?

% change in Q / % change in P measures price elasticity of demand. Here % change in P = (14 - 11)*100/11 = 27.27% and % change in Q = (5 - 10)*100/10 = 50%. Hence, price elasticity of demand = -50%/27.27% = -1.833

2. The demand for movie tickets increases from 210 tickets per day to 280 tickets per day with the fall in the price from $12 a ticket to $8 a ticket.

a) Calculate the price elasticity of demand for movie tickets.

% change in Q / % change in P measures price elasticity of demand. Here % change in P = (8 - 12)*100/12 = -33.33% and % change in Q = (280 - 210)*100/210 = 33.33%. Hence, price elasticity of demand = -33.33%/33.33% = -1

b) Is demand for movie tickets elastic or inelastic?

It is unitary elastic.

Rahul Sunny answered 1 year ago

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