AAST-HLM Program Managerial Economics Dr.

Marwa Elsherif
Name: Ahmed Saad Alkhabery
Group: 1B
Assignment 2
Elasticity

1- A local council raises the price of car parking from £3 per day to £5 per day and finds
that usage of car parks contracts from 1,200 cars a day to 900 cars per day. Calculate
PED for this price changes.

Q1 1200
Q2 900
P1 3
P2 5

Q 2−Q 1 P 2−P 1
PED= ÷
Q2+Q 1 P 2+ P 1
( ) ( )
2 2

900−1200 5−3
PED= ÷ =|−0.57|=0.57
900+1200 5+3
( ) ( )
2 2

Since the value is lower than 1, It’s Inelastic Demand

2- When the price of peanut butter is $4 per package, Oliver buys 8 jars of jelly. When the
price of peanut butter changes to $19 per package, Oliver buys 6 jars of jelly. What is
Oliver's cross-price elasticity of demand?

Q1 8
Q2 6
P1 4
P2 19

Percentage change∈quantity demanded of one good

CPED =
Percentage change∈ price of another good
 6−8
( )
6+8
2 −0.286
CPED = = =−0.219
19−4 1.304
( )
19+ 4
2
3- Alex's income has increased from $3,000 to $5,000. Alex increased his consumption of
bagels from 4 to 8 a month and decreased his consumption of doughnuts from 12 to 6 a
month. Calculate Alex's income elasticity of demand for: a) bagels. b) doughnuts.

Cons.A1 4
Cons.A2 8
Cons.B1 12
Cons.B2 6
Income1 3,000
Income2 5,000

Percentage change∈quantity demanded

Income elasticity of demand=
Percentage change ∈income
a) Income elasticity of Bagels:

( )( )
8−4 5000−3000
÷ =0.67 ÷ 0.5=1.34
8+4 5000+3000
2 2
As it’s Positive and Greater than 1, this good is Normal and Luxury
b) Income elasticity of Doughnuts:

( )( )
6−12 5000−3000
÷ =−0.67 ÷ 0.5=−1.34
6 +12 5000+3000
2 2
As it’s Negative, this good is Inferior

4- Calculate the price elasticity of supply using the mid-point formula when the price
changes from $5 to $6 and the quantity supplied changes from 20 units per supplier per
week to 30 units per supplier per week.

Q1 20
Q2 30
P1 5
P2 6

Percentage change∈quantity supplied

Price elasticity of supply=
Percentage change∈price

( )( )
30−20 6−5
÷ =0.4 ÷ 0.18=2.2
PES= 30+ 20 6+5
2 2
As it’s Greater than 1, this good is Elastic
 Price Quantity demanded
(Dollars per bushel) (bushels)
8 2,000
7 4,000
6 6,000

5- The table above gives the demand schedule for snow peas. The price elasticity of
demand between $6.00 and $7.00 per bushel is ___2.67___ (elastic demand)

( )( )
6000−4000 6−7
PE D= ÷ =0.4 ÷−0.15=|−2.67|=2.67
6000+4000 6+7
2 2

6- The table above gives the demand schedule for snow peas. The price elasticity of
demand between $7.00 and $8.00 per bushel is ___5.15___ (elastic demand)

( )( )
4000−2000 7−8
PE D= ÷ =0.67÷−0.13=|−5.15|=5.15
4000+2000 7 +8
2 2

7- When the price of a movie ticket increases from $5 to $7, the quantity of tickets
demanded decreases from 600 to 400 a day. What is the price elasticity of demand for
movie tickets?

Q1 600
Q2 400
P1 5
P2 7

( )( )
400−600 7−5
PED= ÷ =|−1.2|=1.2
400+600 7 +5
2 2
As it’s Greater than 1, the movie tickets are Elastic goods.
8- "Last October, due to an early frost, the price of a pumpkin increased by 10 percent
compared to the price in the previous Halloween seasons. As a result, the quantity
demanded county-wide decreased from 2 million to 1.5 million." Based on this
statement, the demand for pumpkins is elastic or inelastic?

10
PED= =|−0.4|=0.4
−25
As it’s less than 1, the demand for pumpkins is Inelastic.

9- Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett
Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things
being equal, what will be the percentage change in the quantity of Dell computers
demanded?
% ∆ Qd
2.1=
−5
% ∆ Qd=2.1∗−5=−10.5 %
So, the quantity of Dell computers will be lowered by 10.5%.

10- Deb's income has just risen from $950 per week to $1,050 per week. As a result, she
decides to increase the number of movies she attends each month by 5 percent. Her
demand for movies is
A) represented by a vertical line.
B) represented by a horizontal line.
C) income elastic.
D) income inelastic.

5
PED= =0.5
10
As it’s Less than 1, Her demand for movies is Normal and necessity (D) income inelastic.