Graduate (S) Business Administration 509 THE ECONOMIC ENVIRONMENT OF BUSINESS
	Spring 2018

Elasticity

The homework should be written on 8 1/2 by 11 or A4 paper.  The homework is due on Sunday, March 4.

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Use the information that follows to calculate the appropriate elasticities.

1. When a flower shop raised the price of a floral arrangement from $20 to $28, the number of the arrangements sold decreased from 30 a week to 20. What is the price elasticity of demand for the flowers in this case? How did the shop's total revenue change as a result of this?

2. When the price of product A decreased from $2 to $1, the consumer bought 28 units of product B instead of 20. What is the consumer's cross-price elasticity of demand for these two products? What does the calculated elasticity imply about the relationship between product A and product B for this consumer?

3. When a consumer's income increased from $54,000 to $66,000, they ate at a certain restaurant 36 time a year instead of 28. What is the income elasticity of demand in this case? Based on this calculated elasticity, what type of good is eating at this restaurant as far as this consumer is concerned?

4.    When the price of a jar of jelly decreased from $4 to $2, suppliers of jelly decreased production from 250,000 jars to 150,000 jars.  What is the price elasticity of supply in this case?  What is the interpretation of the estimated elasticity?