Econ 101 Worksheet
10/17/2013
1. Income Elasticity =
% Change in
---------------------------------------------------% Change in
2. Income elasticity is ____________________ for normal goods, but ____________________
for inferior goods.
3. Cross-price Elasticity of Demand =
% Change in
---------------------------------------------------% Change in
4. A positive cross-price elasticity of demand means the two goods are
____________________ and a negative cross-price elasticity of demand means the
two goods are ____________________.
5. Using Figure 1 on the board, calculate the price elasticity of demand when
gasoline rises from $2 to $3 per gallon over:
a. the short run.
b. the long run.
6. The price elasticity of demand for Kellogg’s Corn Flakes ranges from -2.93 to
-4.05. It turns out one end of the range is observed for low-income
households, while the other is observed for high-income households. Identify
which end of the range most likely corresponds with to which type of
household, and explain briefly. [Hint: it has to do with one of the
determinants of elasticity.]
7. Each of the following tells us something specific about the nature of spiral
notebooks: either that the demand for them is elastic or inelastic; that they
are normal or inferior; or that they are substitutes or complements for
another good. In each case, state the relevant conclusion about spiral
notebooks.
a. The income elasticity of demand for spiral notebooks is -0.5.
b. The price elasticity of demand for spiral notebooks is -1.5.
c. The cross-price elasticity of demand for spiral notebooks with tablet
computers is 0.8.
8. Suppose New York City raised subway and bus fares from $2.25 to $2.70, a
20% increase. The short run elasticity for mass transit in New York City is
-0.35. Using this elasticity, each 1% increase in fares would cause a .35%
decrease in ridership over the short run. New Yorkers take about 2 billion
trips each year. Calculate:
a. The decrease in ridership.
b. Total revenue, before and after the price increase.
c. Does total revenue increase or decrease?