Problem: In the following table is data that describe the market for gasoline in a small town. For each given price there is a quantity supplied (QS) and a quantity demanded (QD).
|
Price
|
QS
|
QD
|
|
0.5
|
30
|
193
|
|
0.6
|
35
|
186
|
|
0.7
|
40
|
180
|
|
0.8
|
45
|
173
|
|
0.9
|
50
|
166
|
|
1
|
55
|
160
|
|
1.1
|
60
|
153
|
|
1.2
|
65
|
146
|
|
1.3
|
70
|
140
|
|
1.4
|
75
|
133
|
|
1.5
|
80
|
126
|
|
1.6
|
85
|
120
|
|
1.7
|
90
|
113
|
|
1.8
|
95
|
106
|
|
1.9
|
100
|
100
|
|
2
|
105
|
93
|
|
2.1
|
110
|
86
|
|
2.2
|
115
|
80
|
|
2.3
|
120
|
73
|
|
2.4
|
125
|
66
|
|
2.5
|
130
|
60
|
1) Use the date to draw the supply and demand curves. Label the curves completely.
2) Calculate the equilibrium price and quantity in the gasoline market.
3) What would happen if the price goes up to 2.4 ( show graphically )
4) What would happen if the price goes down to 0.7 ( show graphically )
5) Calculate the price elasticity of demand at the equilibrium price using the exact (point) elasticity measure.
6) Calculate the price elasticity of the following ranges
a. Between P=0.5 and P=0.9
b. Between P=2.2 and P=2.5
7) Imagine that the small town introduces trolley service that will allow most of the residents to get around easily. What would you expect to happen to the demand for gasoline in the area? Would it become more or less elastic? Explain.
8) Draw the total revenue curve and show in the graph where are the elastic and inelastic regions.