Unit 2, Chapter 20
Mr. Maurer
AP Economics
Name: _______________________________
Date: _____________________
Chapter 20, Problem Set #1 – Price Elasticity of Demand
Below is a table of data for cups of coffee demanded per week at various prices.
Price per cup
$10
$9
$8
$7
$6
Quantity demanded
0
20
40
60
80
Price per cup
$4
$3
$2
$1
$0
Quantity demanded
120
140
160
180
200
$5 100
1. Calculate the price elasticity of demand when price increases from $1 to $2? (These first two problems you will probably never see on an AP exam. The math is too hard, but I want to show you an easy way to solve them.)
2. Calculate the price elasticity of demand when price increases from $7 to $8?
3. More likely, you will see a question like: What is the price elasticity of demand when price changes from $7 to $9?
4. Or… What is the price elasticity of demand when price changes from $3 to $5?
5. Or, more likely still, they won’t ask you to actually come up with a number for the elasticity coefficient, they would probably ask you: When price changes from $6 to $8, is demand for this product price elastic, unit elastic, price inelastic? Explain.
6. Or… When price changes from $3 to $1, is demand for this product elastic, inelastic, or unit elastic?
7. But more likely still, they will ask… What will happen to total revenue if price increases from $5 to $7?
8. Or… What will happen to total revenue if price decreases from $6 to $4?

Unit 2, Chapter 20
Price per doughnut
$5
$4
Quantity demanded
0
40
OK, now you do some on your own. Here is a table of price and quantity demanded data for doughnuts.
$3
$2
$1
80
120
160
$0 200
8. What is the price elasticity of demand when price changes from $1 to $0? Is demand elastic, inelastic, or unit elastic over this range?
9. What is the price elasticity of demand when price changes from $3 to $5? Is demand elastic, inelastic, or unit elastic over this range?
10. What will happen to total revenue if price changes from $1 to $3? Why?
11. What will happen to total revenue if price changes from $4 to $3? Why?
12. At what price is demand for doughnuts unit elastic? (Hint: it may not be a price on the table.)
13. What will happen to total revenue if price changes from $2 to $3? Why?
14. What will happen to total revenue if price changes from $3 to $2? Why?
15. OK, this is sort of a trick question. Let’s call it a “supergenius question.” Over what range of prices is demand for doughnuts unit elastic?
16. Over what range of prices is demand for doughnuts inelastic?
17. Over what range of prices is demand for doughnuts elastic?

Unit 2, Chapter 20
18. If demand for a good is relatively inelastic, what will happen to total revenue if price is increased?
19. The price of peas increased by 20% last week, and the quantity purchased decreased by 10%.
What was the elasticity coefficient of demand for peas? Was the demand for peas at that price elastic, inelastic, or unit elastic? What happened to total revenue as a result of this price change?
20. If demand for a good is price elastic, what will happen to total revenue when price is decreased?
21. When the price of coffee was raised from $3 per pound to $5 per pound last year, the quantity purchased per week decreased from 50 tons to 30 tons. What was the price elasticity of demand for coffee at that time for that price change? Was demand for coffee elastic, inelastic, or unit elastic?
Did total revenue for coffee sellers increase, decrease, or stay the same?
22. When the price of beans was decreased from $3 per pound to $1 per pound last year, the quantity purchased per week increased from 80 tons to 120 tons. What was the price elasticity of demand for beans at that time for that price change? Was demand for beans elastic, inelastic, or unit elastic? Did total revenue for bean sellers increase, decrease, or stay the same?
23. Explain why you would guess demand for each of these items is price elastic or price inelastic.
Be sure to reference at least one (but as many as are appropriate) of the four determinants of elasticity of demand on page 362. a. gasoline b. salt c. Maroon 5 tickets d. underwear e. Fruit of the Loom underwear
24. Why do governments tend to put excise taxes on products like cigarettes, liquor, tobacco, and gasoline rather than say, macaroni and cheese or fish sticks? (p. 363-364)