Question

10. Given the following demand schedule, calculate the price elasticity of demand for a price change from S40 to $35. Use the midpoint formula and show all work for full credit. (C2 points) Price () Quantity Demanded 45 40 35 30 25 20 15 10 15 30 45 60 75 90 105 120 135 0 11. Using the schedule above, calculate the elasticity of demand when price changes from S25 to $20. Again, show all of your work. Why are the calculated elasticities different? What factors may explain these differences. (2 points) 12. Farmer Bob sells organic tomatoes at the Haile Village Farmer's Market every week. After talking with some of his customers, he believes that by lowering the price of tomatoes, he can increase total revenue. What is Farmer Bob assuming about the price elasticity of demand for organic tomatoes? What features of Farmer Bob's product might inform this assumption? (2 points 13. Given the following own-price elasticities, what do you know about the good? Be sure to interpret the elasticities in your explanation. (4 points) Good 1 Asparagus Cantaloupe Milk Bottled Water Own Price Elasticity 0.58 0.17

Just problem 13

Answer 1

Problem 13

Meaning of Price Elasticity of Demand: A change in the quantity demanded of a product or service in relation to a change in price of that product or service.

Goods	Price Elasticity	Demand		Interpretation
Asparagus	-0.58	Inelastic Demand	Consumers are used to using Asparagus or may be it is a small percentage of their expenditure, hence it's price elasticity is inelastic.	The consumers are relatively unresponsive to change in price.The percentage change in Qty demanded is less than the percentage change in price. With every 1% increase in the price of Asparagus, the Qty Demanded will fall by 0.58%
Cantaloupe	-1.50	Elastic Demand	Luxury Good (Cheaper Substitute fruits are available)	The consumers are relatively responsive to price changes.The percentage change in Qty demanded is greater than percentage change in price. With every 1% increase in the price of Cantaloupe, the Qty demanded will fall by 1.50%. If price of Cantaloupe rises, the consumers will shift to cheaper substitute.
Milk	-0.17	Inelastic Demand	Necessary Good (People are used to it)	The consumers are relatively unresponsive to change in price.The percentage change in Qty demanded is less than the percentage change in price. With every 1% increase in the price of Milk, the Qty Demanded will fall by 0.17%. Since Milk is a Necessary Good and people are used to it, it's price elasticity is inelastic i.e even if price of Milk rises it's demand will not decrease significantly and consumers will continue buying it.
Bottled Water	-1.39	Elastic Demand	Luxury goods (Cheaper substitute is available i.e. Tap Water)	The consumers are relatively responsive to price changes.The percentage change in Qty demanded is greater than percentage change in price. With every 1% increase in the price of Bottled Water, the Qty demanded will fall by 1.39%. If price of bottled water increases, consumers  will shift to tap water which is a cheaper substitute easily available.