Chapter 3 Empirical Methods for Demand Analysis SOLUTIONS TO END-OF-CHAPTER QUESTIONS ELASTICITY 1.1 Elasticity of demand for prenatal smoking is inelastic: %Q/%P  2.65/21 0.1262. 1.2 An arc price elasticity is an elasticity that uses the average price and average quantity as the denominator for percentage calculations. For example, let be the average quantity and be the average price. The arc price elasticity is = ε . ε= The change in price is $0.30, and the change in quantity is Average price is –2,994. $1.14, and average quantity is 21,189. Thus, the arc elasticity of demand is = = ε –0.537. 1.3 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: = ε . ε= From the demand equation, is so –2, . ε= = ε –0.250. 1.4 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: = ε . ε= From the demand equation, = , so = ε . ε= Since Q= , substituting this for in the equation for elasticity above, Q = ε –0.504. 1.5 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: = ε . ε= From the demand equation, is = = so –4p –4(10) –40,
Chapter 3 Empirical Methods for Demand Analysis SOLUTIONS TO END-OF-CHAPTER QUESTIONS ELASTICITY 1.1 Elasticity of demand for prenatal smoking is inelastic:  %Q/%P 2.65/21 0.1262. 1.2 An arc price elasticity is an elasticity that uses the average price and average quantity as the denominator for percentage calculations. For example, let be the average quantity and be the average price. The arc price elasticity is ε = ε= . The change in price is $0.30, and the change in quantity is –2,994. Average price is $1.14, and average quantity is 21,189. Thus, the arc elasticity of demand is ε = = –0.537. 1.3 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: ε = ε= . From the demand equation, is –2, so ε= . ε = –0.250. 1.4 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: ε = ε= . From the demand equation, = , so ε = ε= . Since Q= , substituting this for Q in the equation for elasticity above, ε = –0.504. 1.5 The elasticity of demand is the percentage change in quantity divided by the percentage change in price: ε = ε= . From the demand equation, is –4p = –4(10) = –40, so
Solution-Manual-for-Managerial-Economics-and-Strategy-2nd-Edition-by-Jeffrey-M-Perloff.docx