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Exercise 1
Suppose that people traveling for business and vacationers have the following demand for air tickets from New York to Boston:
Price Quan�ty demanded Quan�ty demanded People travelling for business reasons
People travelling on holidays
150 2100 1000 200 2000 800 250 1900 600 300 1800 400
a) When the price of tickets increases from $ 200 to $ 250, what is the price elasticity of demand for people traveling on business? And for those who travel for vacation reasons?
b) Why can people who travel on vacation have a different price elasticity than those who travel for business reasons?
Exercise 2
Assume that the price elasticity of demand for heating oil is 0.2 in the short term and 0.7 in the long run
a) If the price of heating oil rises from $ 1.80 to $ 2.2 per liter What happens to the quantity of oil demanded in short-term? And in the long run?
b) Why could the elasticity depend on the temporal horizon?
Exercise 3
The variation of the price of a good cause the quantity demanded of that good to decrease by 30% while the total income of that good increases by 15%. Is the demand curve elastic or inelastic? Explain your answer
Exercise 4
Assume that the DVD demand table is as follows
Price Quan�ty demanded Quan�ty demanded Income = 10.000 $ Income = 12.000 $ 8 40 50 10 32 45 12 24 30 14 16 20
a) Calculate the price elasticity of demand if DVD prices go up from 8 to 10 $ and consumer income is (1) 10,000 and (2) 12,
b) Calculate the income elasticity of your demand if the rent increases from 10,000 to 12,000 and the price is 12.
Exercise 5
The New York Times (February 17, 1996) published a report saying that the number of subway travelers had dropped after a rate increase. "There were almost 4 million fewer travelers in December 1995, the first month after the ticket price rose 25 cents to $ 1.50, which in the previous December, which represents a decrease of 4.3 % in the number of passengers”
a) Use this data to estimate the price elasticity of the demand of subway transportation
b) In your estimation, what happens to the revenues of the subway company when the rate increases?
Exercise 6
Consider policy related to tobacco consumption.
a) Research indicates that the price elasticity of demand for cigarettes is about 0.4. If a packet of cigarettes currently costs $ 2 and the government wants to reduce tobacco consumption by 20%, how much should the price rise?
b) If the government increases the price of cigarettes permanently, will this measure have greater effect within a year or within five?
c) Research have also indicated that adolescents have a price elasticity superior to adults, what could be the reason?
Exercise 7
Drugs have an inelastic demand and the computers have an elastic demand. Suppose that technological advances double the supply of both products (i.e., now the quantity offered at each price is double).
a) What happens to the price and quantity of equilibrium in each market?
b) What is the product whose price undergoes greater variation?
