Question

1. what impact a 5% increase in price would have on quantity demanded for each good. Show your work.

a. Health insurance with an estimated elasticity of -0.65

b. cocaine with an estimated elasticity of -0.28

c. sugar with an estimated elasticity of -0.04

d. DVDs with an estimated elasticity of -3.10

e. grapes with an estimated elasticity of -1.18

f. new automobiles with an estimated elasticity of -1.95

2. what impact a 20% decrease in price would have on quantity demanded for each good. Show your work.

a. Health insurance with an estimated elasticity of -0.65

b. cocaine with an estimated elasticity of -0.28

c. sugar with an estimated elasticity of -0.04

d. DVDs with an estimated elasticity of -3.10

e. grapes with an estimated elasticity of -1.18

f. new automobiles with an estimated elasticity of -1.95

Answer 1

1. Price elasticity of demand = % change in quantity demanded / % change in price

% change in quantity demanded = % change in price * Price elasticity of demand

a) % change in quantity demanded = 5% * -0.65 = -3.25%

Thus, the quantity demanded for health insurance will decrease by 3.25%.

b) % change in quantity demanded = 5% * -0.28 = -1.4%

Thus, the quantity demanded for cocaine will decrease by 1.4%.

c) % change in quantity demanded = 5% * -0.04 = -0.2%

Thus, the quantity demanded for sugar will decrease by 0.2%.

d) % change in quantity demanded = 5% * -3.10 = -15.5%

Thus, the quantity demanded for DVD will decrease by 15.5%.

e) % change in quantity demanded = 5% * -1.18 = -5.9%

Thus, the quantity demanded for grapes will decrease by 5.9%.

f) % change in quantity demanded = -5% * -1.95 = -9.75%

Thus, the quantity demanded for new automobiles will decrease by 9.75%.

2. a) % change in quantity demanded = -20% * -0.65 = 13%

Thus, the quantity demanded for health insurance will increase by 13%.

b) % change in quantity demanded = -20% * -0.28 = 5.6%

Thus, the quantity demanded for cocaine will increase by 5.6%.

c) % change in quantity demanded = -20% * -0.04 = 0.8%

Thus, the quantity demanded for sugar will increase by 0.8%.

d) % change in quantity demanded = -20% * -3.10 = 62%

Thus, the quantity demanded for DVD will increase by 62%.

e) % change in quantity demanded = -20% * -1.18 = 23.6%

Thus, the quantity demanded for grapes will increase by 23.6%.

f) % change in quantity demanded = -20% * -1.95 = 39%

Thus, the quantity demanded for new automobiles will increase by 39%.