CASE STUDY 2 The continuous surge in oil prices in 2007 and 2008 saw a sharp rise in the cost of living globally. One of the most alarming consequences was the rise in the price of food items. The concept of elasticity played an integral role in the changes that occurred in purchasing patterns. Additionally, firms had to make critical decisions regarding pricing policies. Table 1 below provides information on a select item bought by consumers in a hypothetical economy. PRICE OF POTATOES QUANTITY OF ($ per Ib) РОТАТОES 16 4 12 8 a) Using your knowledge from Finite Math, show that the price-demand function is p(x) = -0. 5x + 10 b) Calculate the elasticity of demand for sugar. c) Are potatoes elastic, unitary or inelastic in this price range? (HINT: Try about 3 prices in the price- range) d) What is the interpretation of that price elasticity of demand? e) If the price of potatoes ($6.00) were to increase by 20%, what would be the percentage change in the quantity demanded? f) What happens to the total revenue for potato producers when the price of potatoes increases? Explain your answer. g) Explain 4 factors that influence the price elasticity of demand.
CASE STUDY 2 The continuous surge in oil prices in 2007 and 2008 saw a sharp rise in the cost of living globally. One of the most alarming consequences was the rise in the price of food items. The concept of elasticity played an integral role in the changes that occurred in purchasing patterns. Additionally, firms had to make critical decisions regarding pricing policies. Table 1 below provides information on a select item bought by consumers in a hypothetical economy. PRICE OF POTATOES QUANTITY OF ($ per Ib) РОТАТОES 16 4 12 8 a) Using your knowledge from Finite Math, show that the price-demand function is p(x) = -0. 5x + 10 b) Calculate the elasticity of demand for sugar. c) Are potatoes elastic, unitary or inelastic in this price range? (HINT: Try about 3 prices in the price- range) d) What is the interpretation of that price elasticity of demand? e) If the price of potatoes ($6.00) were to increase by 20%, what would be the percentage change in the quantity demanded? f) What happens to the total revenue for potato producers when the price of potatoes increases? Explain your answer. g) Explain 4 factors that influence the price elasticity of demand.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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D-G
![CASE STUDY 2
The continuous surge in oil prices in 2007 and 2008 saw a sharp rise in the cost of living globally. One
of the most alarming consequences was the rise in the price of food items. The concept of elasticity
played an integral role in the changes that occurred in purchasing patterns. Additionally, firms had to
make critical decisions regarding pricing policies. Table 1 below provides information on a select item
bought by consumers in a hypothetical economy.
PRICE OF POTATOES
QUANTITY OF
($ per Ib)
РОТАTОES
2
16
4
12
6.
8.
a) Using your knowledge from Finite Math, show that the price-demand function is
Р(x) — —0.5х + 10
b) Calculate the elasticity of demand for sugar.
c) Are potatoes elastic, unitary or inelastic in this price range? (HINT: Try about 3 prices in the price-
range)
d) What is the interpretation of that price elasticity of demand?
e) If the price of potatoes ($6.00) were to increase by 20%, what would be the percentage change in
the quantity demanded?
f) What happens to the total revenue for potato producers when the price of potatoes increases?
Explain your answer.
g) Explain 4 factors that influence the price elasticity of demand.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0a78e343-48ac-4458-a3fa-92148e0e1e2e%2Fd08bc360-cc3b-44fa-abad-7d29971f5f5e%2Fhyxee3p_processed.jpeg&w=3840&q=75)
Transcribed Image Text:CASE STUDY 2
The continuous surge in oil prices in 2007 and 2008 saw a sharp rise in the cost of living globally. One
of the most alarming consequences was the rise in the price of food items. The concept of elasticity
played an integral role in the changes that occurred in purchasing patterns. Additionally, firms had to
make critical decisions regarding pricing policies. Table 1 below provides information on a select item
bought by consumers in a hypothetical economy.
PRICE OF POTATOES
QUANTITY OF
($ per Ib)
РОТАTОES
2
16
4
12
6.
8.
a) Using your knowledge from Finite Math, show that the price-demand function is
Р(x) — —0.5х + 10
b) Calculate the elasticity of demand for sugar.
c) Are potatoes elastic, unitary or inelastic in this price range? (HINT: Try about 3 prices in the price-
range)
d) What is the interpretation of that price elasticity of demand?
e) If the price of potatoes ($6.00) were to increase by 20%, what would be the percentage change in
the quantity demanded?
f) What happens to the total revenue for potato producers when the price of potatoes increases?
Explain your answer.
g) Explain 4 factors that influence the price elasticity of demand.
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