# Supply and Demand and Price

Supply and Demand: Elasticities and

Government-set Prices

A. Short-Answer, Essays, and Problems

New 1. The president of a toy company asks you for advice about whether the company should cut the price of its best-selling doll this year based on the following information: last year the company cut the price of its best-selling doll by 10% and the total revenues from doll sales increased by 10%.

New 2. The owner of a health club asks you for advice about whether the company should raise the price of its membership this year based on the following information: last year the club raised the price of its membership by 5% and the number of members paying the same fee fell by 7%.

3. The Metropolitan

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Why is there no total revenue test for elasticity of supply?

New 18. What is the main determinant of the price elasticity of supply? Explain.

New 19. Describe and give reasons for the characteristics of the elasticity of supply of a farm product that is sold at a farmer’s market on a particular day.

20. Draw three supply and demand graphs that illustrate the effect of time on the elasticity of supply using the below graphs. The three graphs should show: (a) the market period; (b) the short run; and (c) the long run.

21. Using the supply data in the schedule shown below, complete the table by computing the price elasticity of supply coefficients between each set of prices. Indicate whether supply is elastic, inelastic or unitary at each set of prices.

Quantity Elasticity Character Price supplied coefficient of supply $11 130 _________ _________ 9 110 _________ _________ 7 90 _________ _________ 5 70 _________ _________ 3 50 _________ _________

22. Why would it be valuable for a business to know the cross elasticity of demand for the two products it produces: peanuts and popcorn?

23. Use the information in the table below to identify the type of cross elasticity relationship between products X and Y in each of the following five cases, A to E.

Percent change Percent change in quantity Cross