ECON 500 Questions for Chapter 4 Questions from the textbook: Review questions 3 and 4 (page 114). Problems 1, 2, 3, 4, 6, and 9 (pages 114-116). Additional problems: 1) Consider a good for which demand is given by the function ppD 150000,3)( −= . a. Determine total expenditure on this commodity as a function of price. b. Is demand elastic, inelastic, or unit elastic at a price of p=12? Explain. c. Would increasing price from p=6 to p=8 increase, decrease, or not change total expenditure on this commodity? Explain. d. State an expression for price elasticity of demand (as a function of price). e. What price maximizes total expenditure on this commodity? Explain. f. Graphically illustrate total expenditure as a function of price.2) The following elasticities have been estimated for Products X and Y: Elasticity Product X Product Y Price Elasticity of Demand 1.36 .87 Cross-Price Elasticity of Demand -.37 -.24 Income Elasticity of Demand -.18 .22 Based upon these estimates, answer the following questions. a. At the current market price, is the demand for “Product X” elastic, inelastic, or unit elastic? Is the demand for “Product Y” elastic, inelastic, or unit elastic? Explain. b. Would an increase in the price of “Product X” increase or decrease total expenditure on “Product X”? Would an increase in the price of “Product Y” increase or decrease total expenditure on “Product Y”? Explain. c. Would an increase in the price of “Product Y” lead to an increase or a decrease in the demand for “Product X”? Explain. Would an increase in the price of “Product X” lead to an increase or a decrease in the demand for “Product Y”? Explain. d. Would an increase in consumer income lead to an increase or a decrease in the demand for “Product X”? Would an increase in consumer income lead to an increase or a decrease in the demand for “Product Y”?
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