ELASTICITY
3.U.S. winter wheat production increased dramatically in 1999after a bumper harvest. The supply curve shifted rightward; asa result, the price decreased and the quantity demandedincreased (a movement along the demand curve). Theaccompanying table describes what happened to prices andthe quantity demanded of wheat.
a.Using the midpoint method, calculate the price elasticityof demand for winter wheat.
b.What is the total revenue for U.S. wheat farmers in 1998and 1999?
c.Did the bumper harvest increase or decrease the total revenueof American wheat farmers?
How could you havepredicted this from your answer to part a?
11. Use an elasticity concept to explain each of the followingobservations.
a.During economic boom times, the number of new personalcare businesses, such as gyms and tanning salons, is proportionately greater than the number of other newbusinesses, such as grocery stores.
b.Cement is the primary building material in Mexico. Afternew technology makes cement cheaper to produce, the supplycurve for the Mexican cement industry becomesrelatively flatter.
c.Some goods that were once considered luxuries, like a telephone,are now considered virtual necessities. As a result,the demand curve for telephone services has becomesteeper over time.
d.Consumers in a less developed country like Guatemalaspend proportionately more of their income on equipmentfor producing things at home, like sewing machines, thanconsumers in a more developed country like Canada.
Chapter 6 / CONSUMER and PRODUCER SURPLUS
4.There are six potential consumers of computer games, each willing to buy only one game. Consumer 1 is willing to pay$40 for a computer game, consumer 2 is willing to pay $35, consumer 3 is willing to pay $30, consumer 4 is willing pay$25, consumer 5 is willing to pay $20, and consumer 6 is willing to pay $15.
a.Suppose the market price is $29. What is the total consumer surplus?
b.Now the market price decreases to $19. What is the total consumer surplus now?
c.When the price fell from $29 to $19, how much did each consumer’s individual consumer surplus change?
6.On Thursday nights, a local restaurant has a pasta special. Arilikes the restaurant’s pasta, and his willingness to pay for eachserving is shown in the accompanying table.
a.If the price of a serving of pasta is $4, how many servingswill Ari buy?)
How much consumer surplus does hereceive?
b.The following week, Ari is back at the restaurant again,but now the price of a serving of pasta is $6. By howmuch does his consumer surplus decrease compared tothe previous week?
c.One week later, he goes to the restaurant again. He discoversthat the restaurant is offering an “all you can eat”(in other words: until you are not willing to eat anymore) special for $25. How much pasta will Ari eat, and howmuch consumer surplus does he receive now?
d.Suppose you own the restaurant and Ari is a “typical” customer.What is the highest price you can charge for the“all you can eat” special and still attract customers?