# Microeconomics - Elasticity of Demand and Consumer Surplus

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Economics

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In this Assignment, you will calculate the Price Elasticity of Demand, demonstrate a firm understanding of consumer choices based on differing marginal utilities, consumer surplus, and how the buying choice and amount of consumer surplus changes based on various pricing schemes.

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Elasticity of Demand and Surplus
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2

BU224 MICROECONOMICS

Questions
1. The accompanying table shows the price and monthly demand for barrels of gosum berries in
Gondwanaland.

Price of
gosum
berries
per
barrel
\$100

Native
Demand
for gosum
berries
per
month
0

\$90

100

\$80

200

\$70

300

\$60

400

\$50

500

\$40

600

\$30

700

\$20

800

\$10

900

\$0

1000

a. Using the midpoint method (show your work), calculate the price elasticity of demand
when the price of barrel of gosum berries rises from \$10 to \$20. What does this estimate
imply about the price elasticity of demand of gosum berries?

800.00 – 900.00= -100.00 =-100.00/850.00= - 0.1176= -0.1765(900.00 + 800.00)/2 =
1700.00/2= \$10.00/\$15.00= 0.6667\$20.00 - \$10.00 = \$10.00(\$10.00 + \$20.00)/2 =\$30.00/2Price
is less than one so this would be inelastic. Increase in price causes few customers to stop buying
and increases revenue.

3

BU224 MICROECONOMICS

b. Using the midpoint method (show your work), calculate the price elasticity of demand
when the price of barrel of gosum berries rises from \$70 to \$80. What does this estimate
imply about the price elasticity of demand of gosum berries?

200 – 300 -100.00/250.00 = -0.4000/0.1333 = -3.000(300 + 200)/2\$10.00/\$75.00\$80.00 +
\$70.00(\$70.00 - \$80.00)/2-100.00\$500.00/2\$10.00\$150.00/2Price is greater than one so this
elastic. Increase in price may cause customer to stop buying and decrease the revenue.
c. Notice that the estimates from (a) and (b) above are different. Why do price elasticity of
demand estimates change along the demand curve?
There are...

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