Elasticity work in class
A pizzeria lowers the price of its most popular takeaway pizza, from 5$ to 4.50$
And finds that the weekly quantity demanded of the pizza’s goes up from 60 to
72.
a. calculate the % change in price and QD
b. calculate the PED for the pizzas
c. calculate the change in total revenue that the pizzeria will experience
following the fall in price
d. draw a revenue box diagram to illustrate the effect on quantity demanded
and total revenue following the price change of the pizza
e. was the firm sensible to lower the price of the pizza? Explain your
answer.
Part 2:
Please create revenue blocks for these problems. Tell whether the good is unit
elastic, inelastic or elastic
1. original price of .90 with an increase to 1.10 original QD 1100 drops to
900?
2. original price of .90 with an increase to 1.10 original QD 1200 drops to
800?
3. original price of .90 with an increase to 1.10 original QD drops from 1050
to 950?
1a. the Nilecom online bookseller wants to increase its total revenue. Currently
every book it sells is priced at 10.50. One suggested strategy is to offer a discount
that lowers the price of a book to 9.50 a 10% reduction in price using the
midpoint formula (method). Thenile.com knows that its customers can be
divided into two groups according to their likely responses to the discount. The
accompanying table shows how the two groups respond to the discount.
Volume of sales before
discount
Volume of sales after the
discount
Group A sales per week
1.55 million
Group B sales per week
1.50 million
1.65 million
1.70 million
Using the midpoint formula, calculate the price elasticities of demand for group a
and b.
Explain how the discount will affect total revenue from each group
Suppose that the company knows which group customers belong to when they
log in and can choose to offer the discount or not. If the company wants to
increase total rev. what should they do? Offer not offer only offer to one group
PED and CPED questions
1. explain how a change in the price of Good X can cause both price and
quantity to increase for complement good Y.
2. A certain product has very few substitutes and a very small proportion of
consumer income is spent on the product. What would the PED be like?
Why?
3. The price of municipal bus fare rises from 3 dirhams to 3.5 dirhams and
the quantity demanded falls by 10%. What is the value of PED?
4. Assume that apples and oranges have a positive CPED while oranges and
orange peelers have a negative CPED. How would you define the two
separate pairs using economic terminology
5. Letter and email have a CPED of 3. If the price of a postage stamp rises
from 4 dhs to 6 dhs, how much will demand for email change?
Lets take a look at determinants of PED
Please find an example to meet an elastic and an inelastic good.
Write down whether these goods are inelastic, unit elastic or elastic
And why based on the determinants of PED
Restaurant meals
Private education
Coffee
Salt
Gasoline
Movies
Foreign travel
Airline travel
Car travel
Tobacco products
Fish
Income Elasticity questions
How will demand for inferior goods in an economy be affected if
a. incomes rise
b. unemployment decreases
c. the general price level for goods rise
Treat each as a separate case.
1. You read in the newspaper about a good with an elasticity of -2. Explain
why you need more information about the type of elasticity since -2 can
actually be referring to two entirely different goods.
2. Must income elasticity of demand be solely positive or solely negative?
Illustrate your answer with a diagram.