2.5 Elasticity Worksheet for Practice PDF

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The worksheet talks about econimcs and microeconomics but not macro economics. It contains economic principles such as microecon and scarcity in 2.5...

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Micro Unit 2

2.8- Elasticity Practice Part 1 - Article Analysis- The following is an excerpt from a J anuary 2018 article about the new football  ead the excerpt and answer the questions below. stadium in Atlanta, GA. R “When the Atlanta Falcons announced the food prices at their new $1.5 billion stadium -- $2 hot dogs and sodas, $3 nachos... -- fans loved it….. The Falcons owner had made a calculated bet that what the organization lost in price markup, it would recoup in volume -- fans would come earlier, stay longer and buy enough food to make up the difference. About 6,000 more fans per game entered the stadium earlier than they did in 2016, and in general, the venue sold as much food by the end of the first quarter of Falcons games as it did in full games in 2016. [Fans] also bought more food -- sales were up 53 percent -- and each fan spent, on average, 16 percent more on concessions (food and drinks). Atlanta’s pricing is a dramatic departure from standard prices in NFL stadiums. At $2, hot dogs at Falcons home games cost less than half the league average $5, according to the 2016 Team Marketing Report.” (Bloomberg News) 1. Re-explain, in your own words, the Atlanta stadium owner’s “calculated bet.” by lowering prices of the food it would encourage more people to come to the stadium, which would make up the losses incurred by lowering the price.

2. Explain why the success of this strategy depends heavily on the elasticity of demand of the food and drinks sold in the stadium. The success of this strategy lies in the elasticity of demand of food and drinks- increase in demand doesn't occur for inelastic goods.

3. If the price of food and drinks decrease by more than 53% and “sales were up 53 percent”, is the demand for concessions in the stadium relatively inelastic, relatively elastic, or unit elastic? Explain

The demand would be relatively inelastic because the equation to solve for elasticity- the coefficient would be decimal, so it's inelastic.

4. Assume that the stadium went from charging the league average price for a hot dog to charging only $2. Also assume that the quantity demanded for hot dogs increased from 30,000 to 39,000. Calculate the price elasticity of demand coefficient and identify if the demand for hot dogs is relatively inelastic, relatively elastic, or unit elastic? relatively inelastic: 0.5

5. Assume that the stadium owner decided to allow unaffiliated vendors to sell nachos inside the stadium. Would the demand for nachos become more inelastic or more elastic? Explain. The demand for nachos would become more elastic because one of the characteristics of elasticity is having many substitutes.

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Micro Unit 2

2.8- Elasticity Practice Part 2 – Article Analysis- Read the article excerpt and answer the questions. “The U.S. average retail price per gallon of regular motor gasoline has fallen 28% from its 2014 peak of $3.70 per gallon...to $2.68 per gallon. However, this price decline may not have much effect on automobile travel, and in turn, gasoline consumption. Price elasticity measures the responsiveness of demand to changes in price. Almost all price elasticities are negative: an increase in price leads to lower demand, and vice versa. [The price elasticity of] automobile travel has fallen in recent decades. The price elasticity of motor gasoline is currently estimated to be in the range of -0.02 to -0.04 in the short term, meaning it takes a 25% to 50% decrease in the price of gasoline to raise automobile travel 1%. In the mid-1990s, the price elasticity for gasoline was higher, around -0.08, meaning it only took a 12% decrease in the price of gasoline to raise automobile travel by 1%. Price elasticities can be difficult to interpret, as demand can change for reasons beyond changes in fuel price, including changes in other economic factors (e.g., income), demographics, driver behavior, vehicle fuel efficiency, and other structural factors.” https://www.eia.gov/todayinenergy/detail.php?id=19191

6. Gas prices peaked in 2007, however there was no measurable decrease in the number of gallons of gas purchased per household until 2010. Identify two reasons the demand for gas is so inelastic. 1.

necessity

2.

few substitutes

7. During this era of high gas prices, consumers began to demand electric vehicles that do not require gas. Will the increase in the availability of electric cars make the demand for gas more elastic or more inelastic? Explain. It will make the demand for gas more elastic since their will be more substitutes for gas.

8. Do you think the supply of electric vehicles is relatively elastic or relatively inelastic? Explain. Since electric cars are considered luxuries, it would be relatively inelastic

9. Identify one good you believe would likely have a positive cross-price elasticity with cars. What does this imply about the relationship between these two goods? This indicates that the products are substitutes- a substitute for a care can be a bike.

10. Suppose incomes increased by 10% and that gasoline consumption increased by 20%. Calculate the income elasticity of demand coefficient for gasoline and identify if it is a normal good or an inferior good. The good is a normal good since the coefficient is positive. (20/10=2)

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Micro Unit 2

2.8- Elasticity Practice Part 3 – Drill and Kill Practice- Answer the following questions regarding price elasticity of supply, cross-price elasticity of demand, and income elasticity of demand. 11. The price of good E increases by 10% and the quantity supplied increases by 20%. Calculate the price elasticity of supply coefficient. 20/10=2 12. Given your answer to question 11, is the supply for good E perfectly elastic, relatively elastic, unit elastic, relatively inelastic, or perfectly inelastic? Explain how you determined your answer. relatively elastic, since 2 is greater than one but less than infinity.

13. When the price of good C increases from $20 to $25 the quantity supplied increases from 100 to 105. Calculate the price elasticity of supply coefficient. 0.2

14. Given your answer to question 13, is the supply for good C perfectly elastic, relatively elastic, unit elastic, relatively inelastic, or perfectly inelastic? Explain how you determined your answer. relatively inelastic, since 0.2 is less than 1 but greater than 0.

15. Suppose that good O and good N are complements. If the price of good O increases by 10%, what will happen to the demand curve of good N? The demand curve of good N will decrease and shift to the left because complements have an inverse relationship.

16. The price of good R rises by 10% and the quantity demanded of good O decreases by 20%. Calculate the cross-price elasticity of demand between good R and good O. 2

17. Given your answer to question 16, are good R and good O complements, substitutes, normal goods, or inferior goods? Explain how you determined your answer. complements, coefficient is negative

18. Suppose that Avery’s income increased by 25% and his purchase of good C increased by 75%. Calculate the income elasticity of good C. 3

19. Given your answer to question 18, is good C a complement, substitute, normal good, or inferior good? Explain how you determined your answer. normal good

20. Joel’s income increased by 25% and his purchase of good K decreased by 25%. Calculate the income elasticity of good K. -1

21. Given your answer to question 20, is good K a complement, substitute, normal good, or inferior good? Explain how you determined your answer. inferior good

22. Read the message created by the names of the goods above. What is the name of the last good? S ECONROCKS

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