Question

2. Assume the following two demand curves: A) Marginal Willingness to Pay = 18 -0.005 Q B) Marginal Willingness to Pay = 26 -20 Solve for the following: 1) Start each curve at a price of $5 and increase the price to $7.50, a. What is the percent change in quantity demanded on each curve (hint: watch your signs) b. Using the mid-point method, what is the percent change in quantity Hemanded? 2) Find the elasticity of each of these curves at this price change using both the percent change method and the mid-point method. 3) Are (A) and (B) elastic or inelastic.

Answer 1

0.005 2100 = (a.) l change in A P= 7.5 $ 7.5 = 18- 0.0050 P=18- 0.005& 5 = 18- 0-0055 9 = 10.5 8 = 13 = 12600 71 0.005 % change = (to 1x100 = [19:23%. To change in Bi7 p = 7.5 P= 26-2ą 7.5=26-29 5 - 26-28 ) = 18.5 9=27 = U S - 995 2600) 7. Change = 1.75 10o = 15.90% ? mid point method. 1 290o =2600 | Xo => | 21:27% ! 2700 - 2600 X W 2600 trion 2 1.75 (B) 135 ) mpo = 117.29.12 ) (10.125

& I change method 1.AP=23 Y AG 1-4P 19.23 so NO = 10:38 (B) +5. go = 20:31] mid point method. Eds 52- 6 3175 = Ezs = 625 12:1. PEP 32 (A) = BE 01.27 - 0066 17.29 = 26.54 32 A and B are inelastic Elasticily value less Than one is called inelastic demand it is free for Bolti