Question

2. The government wants to reduce the consumption of electricity by 10%. If the price elasticity of demand for electricity is 0.4, the government must raise the price of electricity by %. Show work. 3. The price elasticity of demand is likely to be relatively high when: & close substitutes are available be the good or service is a large share of the consumer's budget the good is a luxury longer time period is considered 4. For each pair of items below circle which product would have a higher price elasticity of demand (in absolute value) a Insulin for a diabeticaitin for someone suffering a headache. b. Books in 1990s books now that online stores exist. c. Peak hours thain rides off-peak train rides d. Baseball game tickets among men baseball game tickets among women. e. Drugs among non-addicts, drugs among addicts. f. Alcohol, donuts. 8. Peets' Coffee het drinks in general

Answer 1

2. Here, Price elasticity = of demand (PĖD) 0.4 /о с Сале і quantity demanded - 100 According to the formula PED = % change in a quantity demanded Price O of change in % change in 0.4 = 10 → WAP : 0.4 -) % AP = 10 = 25 The government must raine price of electricity ley 25%

3 Price elasticity measures the degree of responsiveness of quantity demanded of a good or revice, in relation to price change cas Clase rulentetulys. HIGH) - consumers can easily shift to other goodes o che) Large share of consunen budget THIGH a price increare will lead the custener les likely to lay and will versa.

e Luxury good Low au increase in price of a luxury good will not affect consumers much a Longer time period how] in the long dun the demand cuuce of normal goods tend to be inelastic. 4 a Aspirin for headache Headache is not a life threathing event, thus the consumer would el responsive te price of aspirin.

49 Aspiriu for head achie Headache is not a life threathing event, thus the consumer would el responsive the price of aspirin. & Books in online store As there is a plethora of book rellers online . A o rational consumer neould always luey from the store nehich would offer the most value for his/her mouce E off peak train rides During off peak hours: consumars as have greater options, and that the consumer is more flexible with his time.

d Bare hall game ticket стола е оми Anumung, it is the North American demography in Ошови • е силие е Се шопе еке ліkе as women are likely the Орша се елие и things other than leareball tickets in comparison to Ииси. С лар алиме и и addicts Nou addicts are price neuritive celue as addicts are less price nusitive

6 Donuts Donati is widely cosuned product with a relatively high competics and many suleste tutes 9. Hot drinks in general Hot drinks cover a wide range of products such as tea, soups etc.