Principles of Microeconomics
11th Edition
ISBN: 9780133024166
Author: Karl E. Case
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 5P
For each of the following scenarios, decide whether you agree or disagree and explain your answer.
- a. If the
elasticity of demand for cocaine is -0.20 and the Drug Enforcement Administration succeeds in reducing supply substantially, causing the streetprice of the drug to rise by 50 percent, buyers will spend less on cocaine. - b. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New England to New York City and Boston. During the last 2 years, the market has been competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was -1.3, vendors would lose revenues altogether as a result of the price decline.
- c. If the demand for a good has unitary elasticity, or elasticity is -1, it is always true that an increase in its price will lead to more revenues for sellers taken as a whole.
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- If the elasticity of demand for hamburgers equals 21.5 and the quantity demanded equals 40,000, predict what will happen to the quantity demanded of hamburgers when the price increases by 10 percent. If the price falls by 5 percent, what will happen?arrow_forwardIf the midpoint on a straight-line demand curve is at a price of $7, what can we say about the elasticity of demand for a price change from $12 to $10? What about from $6 to $4?arrow_forwardSuppose you are in change of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your companys product at the current price is 1.4, would you advise the company to raise the price, lower the price, or to keep the price the same? What if the elasticity were 0.6? What if it were 1? Explain your answer.arrow_forward
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Price Elasticity of Supply; Author: Economics Online;https://www.youtube.com/watch?v=4bDIm3j-7is;License: Standard youtube license