# What would the price elasticity of demand have been?

The market demand for a gallon of mineral water is P = 10 -.05Q. The producer wants to produce where the elasticity of demandis unity. What price should she charge and what quantity should besold to achieve that goal? b. An economist calculates that theprice elasticity of demand for potatoes in Ireland was 0.80 in1980. To do her analysis, she uses consumer expenditure datadenominated in Irish pounds. If she had converted these data toAmerican dollars at the 1980 exchange rate (1 Irish pound = \$2),what would the price elasticity of demand have been? c. The weeklydemand for sock puppets at the It’s-A-Toy website is P = 30 – 2Q.Compute the point price elasticity of demand when P = 10 Andrew Lay Skilling spent \$100 per month on sharp pencils (X)and shredder blades (Y) at the Enron company store. Pencils cost\$2, and blades cost \$4. In October 2001, Skilling purchased 20pencils and 20 blades. His utilometer readings at the end of themonth showed that the marginal utility of the last pencil was 10utils and the marginal utility of the last blade was 25 utils. a.Write the equation for Skilling’s pencil/blade budget constraint.b. True or False: Skilling was at the tangency point between hisbudget constraint and an indifference curve (SHOW YOUR WORK TOSUPPORT YOUR ANSWER). In the town of Kicksville, Grandpa Yokum makes the bestmoonshine in the town. The demand for Grandpa’s moonshine is Q =200 – P, where Q is gallons of moonshine. Grandpa’s supply functionis Q = -10 + 2P. a. What is the equilibrium price and quantity ofGrandpa Yokum’s moonshine? b. The town of Kicksville decoded toimpose a tax of \$30 per gallon for every gallon of moonshinesupplied by Grandpa Yokum. What is the new equilibrium price andquantity? c. What percentage of the \$30 tax is paid by the buyersof the moonshine, and what percentage is paid by Grandpa Yokum’sbusiness? d. Solve for the price reduced form equation. e. Solvefor the quantity reduced form equation. The table below shows the prices and quantities of hotdogs andhamburgers for year 1 and year 2 Year 1 Year 2 Price Quantity PriceQuantity Hotdogs \$4 50 \$3 70 Hamburgers \$6 80 \$8 60 Using year 1 asthe base year (index of 100): a. calculate the Laspeyeres priceindex for year 2. b. calculate the Paasche price index for year 2.c. calculate the Fischer price index for year 2. . . .

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