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# ECON 1031 – A market researcher notices that

Subject: Economics / Macroeconomics
Question
1) A market researcher notices that, when the price of good A is increased from \$1 per unit to \$2 per unit, the quantity demanded falls from 6000 to 5400 units of A per day.

Questions:

(a) Define the term “Price Elasticity of Demand.”

(b) Calculate the price elasticity of demand for good A in the price range given.

(c) Is the demand for good A elastic or inelastic? Explain.

(d) Based on your answer in part (c), what are some of the characteristics of good A? Explain.
2) (a) Suppose that a good has a price elasticity equal to 0 (Ed=0). What does this mean? Draw a demand curve to illustrate.

(b) What does it mean if a good has a price elasticity equal to 1?
3) An economist determines that the price elasticity of demand for restaurant meals is 1.25. Interpret this value using the price elasticity of demand formula (using the method done in class)
4) (a) Suppose Ed=0.5 for a given good. If there’s a 5% change in price, what is the change in quantity demanded (Qd)?

(b) Suppose once again that Ed=0.5, but there’s now a 15% change in price (all else equal). Calculate the change in quantity demanded.
5) Briefly explain how total revenue (TR) will be affected in each of the following cases (use the TR formula):

(a) Demand is elastic and price increases

(b) The price elasticity of demand (Ed)=0.7 and price increases

(c) Demand is elastic and price decreases

(d) Demand is perfectly inelastic (Ed=0) and price increases

(e) Demand is inelastic and price decreases
6) “If a good is price inelastic, then increasing the good’s price will result in a decrease in total revenue.”

Is the above statement true or false? Explain.

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