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1. Calculate the arc own price elasticity of demand between the points A and B?

2. Is the elasticity different if your go from B to A?

3. Elastic, inelastic, or unit? Why?

4. If at point B and your goal is to increase revenues should you increase or decrease price?

Test YourselfTest Yourself

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Quantity

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1. Calculate the arc own price elasticity of demand between the points B and A?

2. Is the elasticity different if you go from A to B?3. Elastic, inelastic, or unit? Why?4. If at point B and your goal is to increase revenues

should you increase or decrease price?

Test YourselfTest Yourself

Answers1. (4/6)/(-2/8)= -0.3752. No3. Inelastic4. Increase price

1. The calculated own price elasticity of demand for salt is -0.1, whereas, the elasticity for fresh green peas is -2.8. Why is salt more inelastic than fresh green peas?

2. The short-run and long-run own price elasticities for gasoline are -0.2 and -0.7. Why the difference?

Test YourselfTest Yourself

1. The calculated own price elasticity of demand for salt is -0.1, whereas, the elasticity for fresh green peas is -2.8. Why is the salt elasticity more inelastic than fresh green peas?

2. The short-run and long-run own price elasticities for gasoline

are -0.2 and -0.7. Why the difference?

Test YourselfTest Yourself

1. Salt has fewer substitutes, is required to live, and is a very small percentage of total income.

2. Long-run elasticities are more elastic as consumers have time to adjust their consumption bundles.