1. Determine the price elasticity of demand if, in response to an 7.

Which of the pairs of goods would you expect to have a

increase in price of 10 percent, quantity demanded decreases by greater price elasticity of demand?
20 percent. Is demand elastic or inelastic? a. Cars, transportation.
b. Housing, leisure travel.
2. A firm has just increased its price by 5 percent over last year’s c. Rubber during World War II, rubber during the entire
price, and it found that quantity sold remained the same. 20th century.

a. What is its price elasticity of demand?
b. How would you calculate it?
c. What additional information would you search for before
you did your calculation?
3. When tolls on the Mayor Hanif Flyover were reduced from
$1.75 to $1.00, traffic increased from 10,000 to 26,000 trips a
day. Assuming all changes in quantity were due to the change
in price, what is the price elasticity of demand for the Mayor
Hanif Flyover?
4. One football season Domino’s Pizza offered to reduce the
price of its medium-size pizza by $1 for every goal scored by
Leo during the previous week. Until that year, the Leo's team
weren’t scoring many goals. Much to the surprise of
Domino’s, in one week in 1999, the Leo's team scored six
touchdowns.
(Maybe they like pizza.) Domino’s pizzas were selling for $2 a
pie! The quantity of pizzas demanded soared the following
week from 1 pie an hour to 100 pies an hour. What was price
elasticity of demand for Domino’s pizza?
8. Economists have estimated the following transportation
elasticities. For each pair, explain possible reasons why the
elasticities differ.
a. Elasticity of demand for buses is 0.23 during peak hours
and 0.42 during off-peak hours.
b. Elasticity of demand for buses is 0.7 in the short run and
1.5 in the long run.
c. Elasticity of demand for toll roads is 4.7 for low-income
commuters and 0.63 for high-income commuters.
9. Kean University Professor Henry Saffer and Bentley
University Professor Dave Dhaval estimated that if the
alcohol industry increased the prices of alcoholic beverages
by 100 percent underage drinking would fall by 28 percent
and underage binge drinking would fall by 51 percent.
a. What is the elasticity of demand of underage drinking
and binge drinking?
b. What might explain the difference in elasticities?

5. What can you conclude about the price elasticity of

demand in each of the following statements?
a. “The pizza delivery business in this town is very competitive.
I’d lose half my customers if I raised the price by as little as
10%.”
b. “I owned both of the two Kurt Cobain autographed records
in existence. I sold one on eBay for a high price. But when I
sold the second one, the price dropped by 80%.”
c. “My economics professor has chosen to use the Zulfiker
Hyder textbook for this class. I have no choice but to buy this
book.”
d. “I always spend a total of exactly $10 per week on coffee.”

6. Two customers go to the fish counter at a supermarket to buy

some cod. Neither looks at the price. Customer A orders 1 kilo.
Customer B orders £3 worth. What is the price elasticity of
demand for cod of each of the two customers?