Busn 5620 Week 4

BUSN 5260

Current Economic Analysis

Week 4: Personal Assignment

There are no Internet questions with this assignment. You will have to include graphs with this assignment. Remember graphs must be integrated into your Word or Excel file course page submission, or sent as a PDF. If you have questions, remember to post them to the General Questions area of the Discussion forum.

Problems

Problem 1

The following is a demand schedule for shoes:

Price: $100 $80 $60 $40 $20

Quantity: 10 14 18 22 26

-A-

Illustrate the demand curve.

Your graph and demand line are correct.

-B-

How much will consumers spend on shoes at a price of $80?

[pic]

At a price of $80, consumers will spend 14*80 = 1,120. That’s it. P x Q = TR.

-C-

As price drops from $100 to $80, is the demand elastic or inelastic? Show your work or reasoning.

[pic]

Relatively elastic. Price % change = -20 P2 P1

Demand % change = 40 D2 D1

E = 40/-20 = -2 = E=2

Excellent job of sorting this one out with your calculations and reasoning! You are on target.

Problem 2

Advertisers convince people that to be stylish they need twice as many shoes.

-A-

Redraw the demand curve. This new graph and demand line are also very well done.

[pic]

-B-

How much will consumers now spend on shoes at a price of $80?

[pic]

D2 = 28*80=2,240

Correct.

-C-

As price drops from $100 to $80, how does elasticity change as opposed to problem 1? Why?

[pic]

Relatively elastic. Price % change = -20

Demand % change = 40

E = 40/-20 = -2 = E=2 (Elasticity doesn’t change according to the formula on 83 because the total percentage numbers stay the same.)

Exactly! Well done with your reasoning and math skills.

Problem 3

Refer to Table 4.1 in the...