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.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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