**Transcription for Educational Website****Elasticity of Demand**Explain your answer whenever possible. Show necessary steps and reasoning. Write legibly.1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? Refer to determinants of price elasticity of demand in your notes. a. Required textbooks or mystery novels. b. Beethoven recordings or classical music recordings in general. c. Subway rides during the next 6 months or subway rides during the next 5 years. d. Root beer or water. 2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston: | Price | Quantity Demanded (business travelers) | Quantity Demanded (vacationers) | |-------|---------------------------------------|---------------------------------| | $150 | 2,100 tickets | 1,000 tickets | | 200 | 2,000 | 800 | | 250 | 1,900 | 600 | | 300 | 1,800 | 400 | a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations). b. Why might vacationers have a different elasticity from business travelers?8. Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? c. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking 1 year from now or 5 years from now? d. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?

1) Since mysteries are less necessary than textbooks, the demand elasticity for mysteries is…

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? Refer to determinants of price elasticity of demand in your notes. a. required textbooks or mystery novels. b. Beethoven recordings or classical music recordings in general c. subway rides during the next 6 months or subway rides during the next 5 years d. root beer or water 2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? Refer to determinants of price elasticity of demand in your notes. a. required textbooks or mystery novels. b. Beethoven recordings or classical music recordings in general c. subway rides during the next 6 months or subway rides during the next 5 years d. root beer or water 2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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**Transcription for Educational Website**

**Elasticity of Demand**

Explain your answer whenever possible. Show necessary steps and reasoning. Write legibly.

1. For each of the following pairs of goods, which good would you expect to have more elastic demand and why? Refer to determinants of price elasticity of demand in your notes.

a. Required textbooks or mystery novels.
b. Beethoven recordings or classical music recordings in general.
c. Subway rides during the next 6 months or subway rides during the next 5 years.
d. Root beer or water.

2. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:

| Price | Quantity Demanded (business travelers) | Quantity Demanded (vacationers) |
|-------|---------------------------------------|---------------------------------|
| $150 | 2,100 tickets | 1,000 tickets |
| 200 | 2,000 | 800 |
| 250 | 1,900 | 600 |
| 300 | 1,800 | 400 |

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i) business travelers and (ii) vacationers? (Use the midpoint method in your calculations).

b. Why might vacationers have a different elasticity from business travelers?

8. Consider public policy aimed at smoking.

a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?

c. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking 1 year from now or 5 years from now?

d. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?

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