See page 102 - the elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in price.
 

2. How does elasticity of demand differ from the slope of the demand curve?

Elasticity is measured as a ratio of percentages, while slope measured as ratio of changes measured in other unit.  Also, slope refers to a change in the height of a curve or line when you move one unit to the right along the horizontal axis; in contrast, elasticity of demand refers to the change in the quantity demanded (along the horizontal axis) as the price rises along the vertical axis.

3. Draw elastic and inelastic demand curves and explain why they indicate different responses of buyers to a change in price. Draw perfectly elastic and perfectly inelastic demand curves and explain what they indicate about the behavior of buyers.

See pages 104-105.  An elastic demand curve has an elasticity with an absolute value greater than 1. An inelastic demand curve has an elasticity with an absolute value less than 1. A perfectly elastic demand curve is horizontal and its elasticity is infinite. A perfectly inelastic demand curve is vertical and has an elasticity of zero.

4. How is elasticity of demand related to total spending on a good?

If demand is inelastic, buyers spend more on the good when its price is higher.

If demand is elastic, buyers spend less on the good when its price is higher. If demand is unit-elastic, buyers spend the same amount on the good regardless of its price.
 

5.  What three main factors affect elasticity of demand? How and why?

(1) Demand for a good is more elastic when close substitutes for it are available to buyers because people switch more easily from one good (whose price has risen) to the other. (2) As people spend higher fractions of their incomes on a good, their demand for the good becomes more elastic (because an increase in the price of such a good has a large effect on the amounts of products that people can afford). As people spend smaller fractions of their income on a good, their demand for it becomes less elastic.  (3)  Demand becomes more as people have more time to adjust to a change in price.  See pages 106-7.

6. (a) If a 20 percent rise in the price of Frisbees reduces the quantity of Frisbees demanded by 10 percent, what is the elasticity of demand for Frisbees?

The elasticity of demand is  10/20 = 5
 

6. (b) If a 10 percent fall in the price of pizzas reduces the quantity supplied by 30 percent, what is the elasticity of supply of pizzas?

The  elasticity of supply  is -30/-10 = 3

7.  (a) If the elasticity of demand for tortilla chips is 2, by how much would quantity demanded fall if the price were to rise by 10 percent? (b) If the elasticity of demand for virtual pets is 1/2, how much would the price have to increase to reduce quantity demanded by 10 percent?

(a) 20 percent;  (b) 20 percent

8. Which is likely to have more elastic demand: Orange juice or fruit juice? College education or winter scarves?

(a) orange juice -- as a more narrowly-defined product than "fruit juice," it has better substitutes (such as other fruit juices)
(b) winter scarves - because they take a smaller fraction of people's budgets than college education
 

9.  What is the formula for the elasticity of supply?

See page 108.

10. What two main factors affect elasticity of supply?

The cost of producing additional units, and adjustment time.  See pages 109-110.

11. Draw perfectly elastic and inelastic supply curves and explain what they indicate about the behavior of sellers.

See page 109.

12. Draw graphs to show the effects on equilibrium of: (a) an increase in perfectly elastic supply; (b) an increase in perfectly elastic demand.

(a) this graph shows an increase in perfectly elastic supply.  Just add a demand curve and you can see that the equilibrium price falls and the equilibrium quantity increases.
(b) this graph shows an increase in perfectly elastic demand.  Just add a supply curve and you can see that the equilibrium price rises and the equilibrium quantity increases.

13. Suppose that the supply of bricks is perfectly elastic. What happens to the price of bricks and the quantity sold if the demand for bricks increases?

The increase in demand raises the quantity sold and the price remains the same as in this graph.
 

14. Suppose the demand for combs is perfectly inelastic. What happens to the price and quantity sold if the supply of combs increases?

The price will fall, while the quantity sold remains the same, as in this graph.

15. How does an increase in the supply of computers affect total spending on computers if demand is elastic? What if demand were inelastic?

If demand is elastic, the increase in supply reduces total spending on computers.  If demand is inelastic, it raises total spending.
With elastic demand, an increase in the Supply of computers will raise quantities more than proportionally to the decrease in prices. Thus, total spending on computers will increase.
With inelastic demand, an increase in the Supply of computers will lower prices more than proportionally to the increase in quantities. Thus, total spending will decrease.

16. What is the formula for income elasticity of demand?

See page 112.

17. What is the long run?

Long run means "after people have fully adjusted to a change."
 

18. What does a long-run demand curve or supply curve show?

The long-run demand curve shows prices and the quantities demanded at each price after buyers have adjusted completely to that price.  Similarly, the long-run supply curve shows prices and the quantity supplied at each price after sellers have adjusted completely to that price.

19. Why is long-run supply more elastic than short-run supply?

Long run means "after people have fully adjusted to a change."  Pages 113-115 explain why this makes long-run supply more elastic than short-run supply.
 

20. If a 10 percent increase in income raises the demand for airline tickets by 30 percent, what is the income elasticity of the demand for airline tickets?

The income elasticity of demand is  30/10 = 3.

21. If a 30 percent fall in the price of DVD players lowers the quantity demanded of conventional CD players by 60 percent, what is the cross-price elasticity of demand?

60/30 = 2.

22. (a) How does a 20 percent fall in the price of software affect the quantity demanded if the elasticity of demand is 2?
(b) An increase in the supply of doughnuts raises the quantity sold by 30 percent. If the elasticity of demand is 2, what happens to the price of doughnuts?
(c) An increase in the demand for a computer game raises the quantity sold by 50 percent. If the elasticity of supply is 5, what happens to the price?

(a) It raises the quantity demanded by 40 percent.
(b) The price falls by 15 percent.
(c) The price rises by 10 percent.
 

23. (a) If the elasticity of demand for ice cream were 1/2, how much would quantity demanded fall if a decrease in supply raised the price by 10 percent?
(b) If the income elasticity of demand for steak were 2, how much would the quantity demanded increase if buyers’ incomes rose by 10 percent?

(a) The question asks about a change in quantity demanded caused by a change in price, so we are looking at a movement along the demand curve.  So we use the formula for the elasticity of demand:  percentage change in quantity demanded = elasticity of demand  times percentage change in price

Let X be the percentage change in quantity demanded.  Then
 

X = (10) (-1/2)

so

X = -5

so the quantity demanded would fall by 5 percent.

(b) Income elasticity of demand = percentage rise in quantity demanded / percentage change in income

Let X be the percentage change in quantity demanded.  Then
 

2 = X / 10

so

X = 20

so the quantity demanded would increase by 20 percent.
 

24. Which is likely to have a higher elasticity of demand:
a. Ice cream or chocolate ice cream?
b. Haircuts, or haircuts at the local Hair We Are outlet?

a. Demand for a good is more elastic when close substitutes are available. That means that the chocolate ice cream would have a higher elasticity of demand because people could easily substitute other flavors.

b. Using the same reasoning as in part a, haircuts at the local Hair We Are outlet would have a higher elasticity of demand because people could easily substitute go somewhere else for a haircut.

25. Your club is raising money by holding a car wash. If the elasticity of demand for your car wash is 3, by what percentage would quantity demanded rise if you were to reduce the price by 30 percent? Would your club earn more money or less?

If you reduced the price by 30 percent, quantity demanded would increase by 90 percent.  You would earn more money (though you would also wash more cars) because the number of cars rises more than proportionately to the fall in price.

26. Comment: "Toothpaste is a necessity. Everyone has to brush his or her teeth, so the demand for toothpaste must be perfectly inelastic."

False.  Although people must brush their teeth to keep their teeth healthy, the quantity of toothpaste demanded falls when the price increases (so the demand is not perfectly inelastic).  At higher prices of toothpaste, people can brush less frequently, use less toothpaste each time they brush, and use substitutes such as baking soda, chewing gum, and mouthwash.

27. Suppose that the elasticity of world market demand for wheat in Figure 15 (on page 117) were ¼ (rather than 1). Do American farmers gain or lose if a drought reduces their wheat supply (while leaving foreign supply unaffected)?

The 25 percent decrease in supply of wheat would then raise the world price by 100 percent, to $6 per bushel.  American farmers would neither gain nor lose: they would earn a total of $600 just as they did before the drought ($6 per bushel times 100 bushels, rather than $3 per bushel times 200 bushels).

28. It takes over 50 years to grow a new walnut tree to the size at which it can provide a profitable harvest. The demand for wood from walnut trees increased in recent years, causing the price of walnut to rise 20 percent. Use supply-and-demand analysis to show the effect of an increase in demand for walnut on its price and quantity sold in the short run and long run.
Let's assume the supply of walnut is perfectly inelastic in the short run because of the limited number of walnut trees. The increase in demand from D1  to D2 would move the equilibrium from point A to point B in the short run, raising the price (but leaving the quantity unchanged).  This increase in price will lead firms to plant additional walnut trees for future sale (after 50 years in this case).  In the long run, the equilibrium moves from point B to point C (where the demand curve intersects the long-run supply curve), reducing the price and raising the quantity sold.
NOTE: The answer to this question could be further complicated by recalling the distinction between short-run demand curves and long-run demand curves, as in Figure 5.13 in the text.  The long-run demand for walnut will be more elastic (flatter) than the short-run demand; as a result, the long-run equilibrium will actually occur at a point on the long-run supply curve somewhere between points A and C.
 

29. Apply the elasticity-of-demand formulas to answer these questions:
a. An increase in demand for carrots raises the equilibrium quantity sold by 30 percent. If the elasticity of demand for carrots is -2, and the elasticity of supply is 3, how much does the price of carrots increase?

When demand changes and supply does not change, we use the formula for the elasticity of supply to calculate the change in price.  (We must do this because the elasticity of supply describes the shape of the supply curve.  When demand changes, the equilibrium moves from one point to another along an unchanged supply curve.)  So, letting X denote the percentage change in price,

X = Percentage change in quantity supplied / Elasticity of supply     =  30/3  =  10,  so the price rises by 10 percent.

b. An increase in the supply of cellular phones reduces their price by 20 percent. If the elasticity of demand for cellular phones is -2 and the elasticity of supply is 1, how much do sales of cellular phones increase?

When supply changes and demand does not change, we use the formula for the elasticity of demand to calculate the change in quantity.  (We must do this because the elasticity of demand describes the shape of the demand curve; when supply changes, the equilibrium moves from one point to another along an unchanged demand curve.)  So, letting X denote the percentage change in quantity demanded,

X = (Percentage change in quantity demanded)  (Elasticity of demand)   =  (-20/(-2)  =  40,   so the quantity demanded, and the equilibrium quantity of cellular phones sold, increase by 40 percent.

30. (a) If the demand for a firm’s product were inelastic, would a price increase raise or lower company profits?
(b) If the demand for a firm’s product were elastic, would a price increase raise or lower profits? What other information would you need to answer this question?

(a) With inelastic demand, a price increase lowers the quantity demanded by less, in percentage terms, than the price rises.  As a result, a price increases raises total spending on the good.  A firm’s profits would rise if the firm’s cost of producing the additional goods is smaller than the increase in spending on those goods.   A firm’s profits would fall if the firm’s cost of producing the additional goods is larger than the increase in spending on those goods.   (b) With elastic demand, a price increase causes the quantity demanded to fall by more, in percentage terms, than the price increased, lowering total spending on the good.  A firm’s profits would rise if the fall in spending is smaller than the money that the firm saves by producing fewer goods. A firm’s profits would fall if the fall in spending is larger than the money that the firm saves by producing fewer goods.

31. What information would you need about elasticity of demand in order to decide whether a college would gain or lose total revenue if it raised scholarships?

If the demand is elastic, then colleges gain revenue by reducing their prices -- that is, by increasing scholarships.  They lose revenue from increasing scholarships if demand is inelastic.

32. How would you try to measure the elasticity of demand for a good, such as pizzas or automobiles?

You might look for times when you believe that demand did not change (the demand curve did not shift) but when the price changed because of a change in supply.  If you can get information on how much the price changed, and how much sales of the good changed as a result of the change in price, then you can calculate the elasticity of demand.  If you operated your own business firm, you could calculate the elasticity of demand for your product by experimenting -- changing the price to see how the quantity demanded changes (doing this in a period of time when the demand curve does not shift).

33. How can business firms use information about the elasticities of demand for their products?

A firm might be interested in knowing the elasticity of demand for its product because it would help the firm choose the price that maximizes its profits by determining how a price change would affect sales.