Practice Worksheet 2:
Elasticities
Practice Worksheet 2:
Elasticities
1. Falana runs a body-piercing business out of her kitchen in order to pay her college tuition fees. She initially charges $15 per piercing (including the standard gold electro-plated, barbed-stud (regardless of body part) and averages 12 customers per week. She later raises the price to $20 and her sales fall to 10 per week .b. What is the mid-point (or arc) price elasticity of demand for her piercings?
c. Calculate Falana's total revenue when she charges $20 per piercing.
d. Calculate her total revenue when she charges $15 per piercing.
e. Is the demand for Falana's piercings elastic or inelastic?
2. Match the following elasticities with their correct example.
a. price elasticity of Demand
b. price elasticity of Supply
c. cross (price) elasticity of Demand
d. income elasticity of Demand
____ a 3% growth in the economy results in an increase in the sales of new houses
____ the price of Reebok shoes falls 10% causing sales of Nike shoes to fal1 2%
____ the price of Reebok shoes rises 20% causing sales of Reebok shoes to fall 10%
____ the minimum wage is raised 20% causing the entry level jobs to decrease 5%
____ the minimum wage is raised 20% causing the labor force to increase 2%
3. LCC is facing a loss in State revenue due to a new funding formula implemented by the Oregon legislature and recent measures passed by voters. The LCC Administration decides to lay-off part-time instructors and cut course offerings rather than raise tuition fees by $2 per credit. The LCC Administration must believe that student demand for courses is
a. price inelastic
b. income inelastic
c. price elastic
d. income elastic
4. Suppose the price of a company's product is at the low end of the Demand line. Would the company make more money by lowering prices or by raising prices?
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Do you have questions?: Phil's E-mail: martinezp@lcc.edu