DETERMINANTS OF ELASTICITY The table below lists the characteristics of an item that is elastic (first column) and the c

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DETERMINANTS OF ELASTICITY The table below lists the characteristics of an item that is elastic (first column) and the characteristics of an item that is inelastic (second column). In the problems that follow, first identify whether the item is elastic or inelastic. Then, write down the letter(s) from the table that lists the proper explanation. Elastic Items Inelastic Items A) Substitutes exist and are readily available. E) Substitutes are hard to find or may not exist. B) The item represents a large portion of a person's income. F) The item is a small portion of a person's income. C) The item is a luxury G)The item is a necessity D) Consumers have a lot of time to adjust to a change in price. H) Consumers have little time to adjust to a change in price. 1) Insulin (Hint. Look at C and G) a) Is this item elastic, or is it inelastic? b) How do you know? 2) Salt (Hint: Look at B and F) a) Is this item elastic, or is itinelastic? b) How do you know? 3) Salt at one of Four Stores in a Shopping Mall (Hint: Look at A and E) a) Is this item elastic, or is it inelastic? b) How do you know? 4) Cup of Coffee One Day after a 50% Price Increase_(Hint: Look at D and H) a) Is this item elastic, or is it inelastic? b) How do you know? 5) Cup of Coffee One Year after a 50% Price Increase (Hint: Look at D and H) a) Is this item elastic, or is it inelastic? b) How do you know?

6) Gasoline (Hint: Look at C and G) a) Is this item elastic, or is it inelastic? b) How do you know? 7) Meal at a Sit Down Restaurant (Hint: Look ar C and G) #) Is this item elastic, or is it inelastic? b) How do you know? 8) Diamond Rings (Hint: Look at 8 and F) a) Is this item elastic, or is it inelastic? b) How do you know?

DETERMINING ELASTICITY SUPPLY AND DEMAND - 3.6.5a THE PRICE ELASTICITY OF DEMAND Use the formula for the price elasticity of demand to solve these problems. Remember, coefficients below 1 are inelastic; coefficients equal to 1 are unit elastic; and coefficients greater than 1 are elastic. Q2-Q1 9) The first price and quantity are $4 and 21 units. The second price and quantity are $6 and 19 units. What is the Price (Q1 +Q2)/2 coefficient of elasticity, and is this item elastic, inelastic, or unit elastic? Elasticity of Demand P2-P Coefficient of Elasticity: (P+ P2)/2 Elastic/Inelastic/Unit Elastic: 10) The first price and quantity are $9 and 120 units. The second price and quantity are $7 and 200 units. What is the coefficient of elasticity, and is this item elastic, inelastic, or unit elastic? Coefficient of Elasticity: Elastic/Inelastic/Unit Elastic:

TOTAL REVENUE TEST Use the Total Revenue Test to solve these problems. Remember, if total revenue moves in the same direction as price, it is inelastic; if total revenue stays the same, it is unit elastic; and if total revenue moves in the opposite direction as price, it is elastic. STEP ONE Old Price x Old Demand - Old Total Revenue 11) When the old price is $2.50, the old demand is 10. When the new price becomes $3, the new demand is 9. Is demand elastic, inelastic, or unit elastic? Elastic/Inelastic/Unit Elastic: STEP TWO: New Price x New Demand = New Total Revenue STEP THREE: Did TR move with price, against price, or not at all? 12) When the old price is $30, the old demand is 10. When the new price becomes $25, the new demand is 15. Is demand elastic, inelastic, or unit elastic? Elastic/Inelastic/Unit Elastic: STEP ONE STEP TWO STEP THREE: Did TR move with price, against prico, or not at all? 13) When the old price is $6, the old demand is 80. When the new price becomes $8, the new demand is 60. Is demand elastic, inelastic, or unit elastic? Elastic/Inelastic/Unit Elastic: STEP ONE STEP TWO: STEP THREE: Did TR move with price, against price, or not at all?