1. For this question, I would like you practice calculating an elasticity.

a. First think of a good or service with which you are familiar. What is the good?

b. What is the current price for that good or service?

c.What is a possible new, different, price?

d. Estimate the current quantity demanded for the good or service (this will be an educated guess).

e. Estimate the new quantity demanded wit the new price (again, an educated guess).

f. Using the elasticity formula from the textbook, calculate the price elasticity of demand. Please show your work

g. How does this elasticity compare with the examples in the textbook? Is it reasonable? Why?

2. Imagine that you are an intern at a business. They ask you to research how demand for their product depends on household income. You remember that this is measured by the income elasticity of demand and that the U.S. economists measure this at . https://www.bls.gov/cex/tables/calendar-year/mean-item-share-average-standard-error/cu-income-quintiles-before-taxes-2019.pdf (Links to an external site.)

Choose two goods or services of interest to you. For each good or services:

a. What are the two goods or services? (Scroll down to see lots and lots of choices.)

b. The “mean” tells you how much that income group spends on that item in dollars. The first column is for everyone. The next columns show spending for the poor through the rich.

Record two “means” for each good or service for two different income levels.

c. Do these numbers indicate that each good has a high or low income elasticity of demand (or perhaps even an inferior good)? How do you know?

3. Based on the class discussion about whether to use a supply or demand based government policy to reduce heroin use: What is the best policy based on your understanding of the price elasticity of demand for heroin? Why?

4. Household demand for electricity is estimated to be price inelastic but income elastic.

a. Explain why this likely is true.

b. Global warming is caused in part by burning fossil fuels to generate household electricity. What do you expect to happen as electricity prices rise at the same time that household incomes rise? Explain why. Again, no additional research needed. Please use your understanding of price and income elasticity.

Calculus alternative

For one of the question above, you may substitute this alternative: Go to Microeconomics and Calculus link at the top of the course Canvas page. There, complete the two lessons: “Elasticity” and “Elasticity and total revenue.” Report your answers to the questions asked (even if incorrect) and explain how you reached your answer. What did you learn about economics from these modules? What did you learn about calculus?