Question
The demand schedule for computer chips is in the table.
|
Price
(dollars
per chip)
|
Quantity demanded
(millions of
chips per year)
|
|
200
|
50
|
|
250
|
45
|
|
300
|
40
|
|
350
|
35
|
|
400
|
30
|
(a) What happens to total revenue if the price falls from $400 to $350 a chip and from $350 to $300 a chip?
(b) At an average price of $350, is the demand for chips elastic, inelastic, or unit elastic? Use the total revenue test to answer this question.
(c) At $250 a chip, is the demand for chips elastic or inelastic? Use the total revenue test to answer this question.
When Alex's income was $3,000, he bought 4 bagels and 12 donuts a month. Now his income is $5,000 and he buys 8 bagels and 6 donuts a month.
(d) Calculate Alex's income elasticity of demand for bagels.
(e) Calculate Alex's income elasticity of demand for donuts. Suppose a drought cuts the quantity of wheat grown by 2 per cent.
(f) If the price elasticity of demand for wheat is 0.5, by how much will the price of wheat rise?
(g) If pasta makers estimate that this change in the price of wheat will increase the price of pasta by 25 per cent and decrease the quantity demanded of pasta by 8 per cent, what is the pasta makers' estimate of the price elasticity of demand for pasta?
(h) If pasta sauce makers estimate that, with the change in the price of pasta, the quantity of pasta sauce demanded will decrease by 5 per cent, what is the pasta sauce makers' estimate of the cross elasticity of demand for pasta sauce with respect to the price of pasta?