Class 12/11 Demand and elasticity of demand

Pankaj Bhanwani

#9899971997

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Class 12/11 Micro Economics

Demand and Elasticity of demand

The following table gives the estimated price elasticity of certain good- Just for reference

Estimated price elasticity of demand for selected product

Product	Price elasticity of demand
Salt	0.1
Water	0.2
Coffee	0.3
Shoes	0.3
Housing	1
Automobiles	1.2
Foreign Travel	1.8
Restaurant meals	2.3
Air Travel	2.4
Specific brand of coffee	5.6

Answer the following questions

Q1 For each of the following goods, indicate whether you expect elasticity as elastic or inelastic Give reasons for your answer

Good	Reason
Theatre show
Foreign Travel
Telephone service
Eggs
CD Rental

Q2 How would a tax on alcohol affect the number of highway deaths among young adults?v

Q3 Why is bumper crop bad news for farmers ?

Q4 I am the owner of a big mega store  , I noticed that elasticity of customers differed in the shorter and longer period

I also noticed that the increase in price of sandwiches had other effect on my store. In particular , the number of Soda declined while the number of yoghurts sold went up

How might you explain this pattern

Q5 Explain whether each of the following events represents (i) a change in demand (a shift of the demand curve) or (ii) a movement along the demand curve (a change in the quantity demanded).

a. A store owner finds that customers are willing to pay more

for umbrellas on rainy days.

b. When XYZ Telecom, a long-distance telephone service

provider, offered reduced rates on weekends, its volume of weekend calling increased sharply.

c. People buy more long-stem roses the week of Valentine’s Day, even though the prices are higher than at other times during the year.

d. A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases.