economics assignment

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Homework – Ch. 5 (Due Oct. 29 In Class) Name______________________________ 1) When the price of a good increased by 9 percent, the quantity demanded of it decreased by 1

percent

a) Is the demand for this good elastic, unit elastic, or inelastic? (1 point)

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b) Is this good a luxury good or a necessity? (1 point)

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c) Calculate price elasticity of demand for this good. (1 point)

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2) Answer the following question.

a) Calculate the price elasticity of demand for lettuce when price an increase in price from $700

per ton to $900 per ton causes the quantity demanded to fall from 12,000 tons per day to 8,000

tons per day (2 points)

b) What type of elasticity does the change in price above exhibit? elastic, inelastic, unit elastic,

perfectly elastic and perfectly inelastic demand (1 point)

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3) If the price of a good changes from $20 to $15, demand changes from 30 to 40 units, and supply

changes from 50 to 40 units,

a) Calculate the price elasticity of supply (2 points)

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4) Average income increases from $75,000 p.a. to $80,000 p.a. Quantity demanded per year increases

from 8,000 to 6,000 units

a) Calculate the income elasticity of demand (2 points)

b) Is this a normal or inferior good? (1 point)

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5) A tax is imposed on a good (widgets) where supply is inelastic (and demand relatively elastic).

a) Draw and label the demand and supply curves for this good (widgets) showing what happens

before and after the tax is imposed (5 points)

b) Using the diagram in part (a), what are the effects that a sale tax has on equilibrium price and

equilibrium quantity? (2 points)

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c) Who will pay the bulk of the tax? (1 point)

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d) Show the deadweight loss in the diagram (1 point)