Individual Assignment

Question 1 : Using the midpoint method, compute the elasticity of demand between points A and B. Is demand
along this portion of the curve elastic or inelastic? Now compute the

elasticity of demand between points B and C. Is demand along this

portion of the curve elastic or inelastic?

・Between A and B :
- P1 : 12 ; Q1: 300
- P2: 18 ; Q2 : 100
Price elasticity of demand = = (𝑃2−𝑃1)/ [(𝑃2+𝑃1)/2]
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑑 (𝑄2−𝑄1)/ [(𝑄2+𝑄1)/2]
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃
= = 2,5＞1
(100−300)÷((100+300)÷2)×100
(18−12)÷((18+12)÷2)×100
→ The elasticity of demand between points A and B is elastic.
・Between B and C :
- P1 : 6 ; Q1 : 500
- P2 : 12 ; Q2 : 300
Price elasticity of demand = = (𝑃2−𝑃1)/ [(𝑃2+𝑃1)/2]
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑑 (𝑄2−𝑄1)/ [(𝑄2+𝑄1)/2]
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃
= = 0,75＜1
(300−500)÷((300+500)÷2)×100
(12−6)÷((12+6)÷2)×100
→ The elasticity of demand between points B and C is inelastic.

Question 2 : Using the graph shown, in which the vertical distance between points A and B
represents the tax in the market, answer the following
questions :
・What was the equilibrium price and quantity in this market before
the tax? As a result of the tax, what has happened to the level of
market activity?
- The equilibrium _ Price : 8
_ Quantity : 8000
→ The level of market activity has fallen, from 8000 bought and
sold to only 6000 bought and sold.
・How much of the tax will the buyers pay? How much of the tax will the sellers pay?
- The tax of buyers pay $3 more. (11-8)
- The tax of sellers pay $2 less. (8-6)

・How much will the buyer pay for the product after the tax is imposed? How much will the seller receive after the tax is
imposed?
- The buyer pay PB= $11
- The seller pay Ps= $6

Question 3 : The table shown reflects the value Tammy places on each donut she eats :

Value of first donut $0.60

Value of second donut $0.50

Value of third donut $0.40

Value of fourth donut $0.30

Value of fifth donut $0.20

Value of sixth donut $0.10

1. Use this information to construct Tammy's demand curve for donuts.

2. If the price of donuts is $0.20, how many donuts will Tammy buy? Show
Tammy's consumer surplus on your graph.

- At a price of $0.20, Tammy would buy 5 donuts.

3. How much consumer surplus would she have at a price of $0.20?

- CSTammy = $0,4 + $0,3 + $0,2 + $0,1 = $1.00

4. If the price of donuts rose to $0.40, how many donuts would she
purchase now? What would happen to Tammy's consumer surplus?
Show this change on your graph.

- If the price of donuts rose to $0.40, Tammy's consumer

surplus would fall to $0.30 and she would purchase only 3
donuts.
- CS = $0,2 + $0,1 = $0,3