Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 2.7P
Taxicab fares in most cities are regulated. Several years ago, taxicab drivers in Boston obtained permission to raise their fares 10 percent, and they anticipated that revenues would increase by about 10 percent as a result. They were disappointed, however. When the commissioner granted the 10 percent increase, revenues increased by only about 5 percent. What can you infer about the
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Taxicab fares in most cities are regulated. Several years ago, taxicab drivers in Boston obtained permission to raise their fares 10 percent, and the anticipated revenues would increase by about 10 percent as a result. They were disappointed, however, when the commissioner granted the 10% increase, revenues only increase about 5%. What can you infer about the elasticity of demand for taxi cab rides? What were taxicab drivers assuming about the elasticity of demand?
Elasticity in the real world—sort of. The managers of a scholarly journal that I edit were thinking of raising the subscription prices. We used to charge individuals $32 for four issues per year and libraries $52 for the same. The managers proposed raising the prices to $45 and $75, respectively. My feeling was that these increases were too small, especially since the prices of substitutes (scholarly journals of a quality similar to ours) were much higher. I suggested that we charge $50 and $85, respectively. I believed that was more sensible, since the demand is quite inelastic over this price range, so with a larger price increase our total revenue would rise further. Apparently the managers agreed, and we raised our prices by the larger amount. Next year our revenue rose, suggesting that my guess about the elasticity of demand was correct.
Why do you think the journal charges different prices to libraries?
Do individuals have a higher or lower elasticity of demand than libraries?…
Suppose the elasticity of demand for used cars is estimated to be 3. What does this mean? What will be the effect on the quantity demanded for used cars if the price rises by 10 Percent?
Suppose a university raises its tuition from $3,000 to $3,500. As a result, student enrollment falls from falls from 5,000 to 4,500. Calculate the price elasticity of demand. Is demand elastic, unitary elastic, or inelastic?
Suppose the movie theater raises the price of popcorn 10 percent, but customers do not buy any less of it. What does this tell you about the price elasticity of demand, and what will happen to total revenue as a result of the price increase?
Suppose the income elasticity of demand for furniture is 3 and the income elasticity of demand for physician services is 0.3. Compare the impact on furniture and physician services of a recession that reduces consumer income by 10%.
Opponents of increasing the tax on gasoline argue that the big oil companies just pass the tax…
Chapter 5 Solutions
Principles of Economics (12th Edition)
Ch. 5 - Prob. 1.1PCh. 5 - Prob. 2.1PCh. 5 - Prob. 2.2PCh. 5 - Using the midpoint formula, calculate elasticity...Ch. 5 - A sporting goods store has estimated the demand...Ch. 5 - For each of the following scenarios, decide...Ch. 5 - For the following statements, decide whether you...Ch. 5 - Taxicab fares in most cities are regulated....Ch. 5 - Studies have fixed the short-run price elasticity...Ch. 5 - Prob. 2.9P
Ch. 5 - Prob. 2.10PCh. 5 - Prob. 2.11PCh. 5 - [Related to the Economics in Practice on p. 99] At...Ch. 5 - Prob. 3.2PCh. 5 - Prob. 4.1PCh. 5 - Prob. 4.2PCh. 5 - The cross-price elasticity values for three sets...Ch. 5 - Prob. 4.4PCh. 5 - World famous Burpee Beer is brewed in the small...Ch. 5 - Prob. 5.2P
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- Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forwardTransport operators in Belize received permission to increase their fares 15percent, and they anticipated that revenues would increase by about 15percent. When the 15 percent increase was enacted revenues increased by only about 5 percent. What can you infer about the elasticity of demand for transportation? What were operators assuming about the elasticity of demandarrow_forward
- The price decreases from $2,000 to $1,800. Quantity demanded per year increases from 5000 to 6000 units. How is elasticity useful in this problem?arrow_forwardHow does the elasticity of a product impact Corporate Revenue? Why is it important for companies to understand this concept?arrow_forwardThe subway fare in your town has just been increased from 50 cents to $1.00 per ride. As a result, the transit authority notes a decline in ridership of 30 percent. What is the price elasticity of demand for subway rides? –0.45 0.45 2.22 –2.22arrow_forward
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Elasticity of Demand- Micro Topic 2.3; Author: Jacob Clifford;https://www.youtube.com/watch?v=HHcblIxiAAk;License: Standard YouTube License, CC-BY