Glendale Community College Elasticity Formula Economics Questions
1. For this question, I would like you practice calculating an elasticity.
a. First think of a good or service with which you are familiar. What is the good?
b. What is the current price for that good or service?
c.What is a possible new, different, price?
d. Estimate the current quantity demanded for the good or service (this will be an educated guess).
e. Estimate the new quantity demanded wit the new price (again, an educated guess).
f. Using the elasticity formula from the textbook, calculate the price elasticity of demand. Please show your work
g. How does this elasticity compare with the examples in the textbook? Is it reasonable? Why?
Choose two goods or services of interest to you. For each good or services:
a. What is the good or service?
b. Which two numbers for each good at the website provide information about the impact of income on quantity demanded (cite these numbers and the income levels used)
Note: the columns show the expenditure by “quintile” that is the bottom 20% up to the top 20%. The “mean” for each good or service tells you how much that quintile spends on the good or service.
c. Do these numbers indicate that each good has a high or low income elasticity of demand (or perhaps even an inferior good)? How do you know?
3. Based on the class discussion about whether to use a supply or demand based government policy to reduce heroin use: What is the best policy based on your understanding of the price elasticity of demand for heroin? Why?
4. Household use of electricity is estimated to be price inelastic but income elastic.
a. Explain why this likely is true.
b. Global warming is caused in part by burning fossil fuels to generate household electricity. What do you expect to happen as electricity prices rise at the same time that household incomes rise? Explain why. Again, no additional research needed. Please use your understanding of price and income elasticity.
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