1. Ch 6 and 7 Review
Ap Micro 9/25

2. Homework Check!
Get out a different colored pen and correct your answers
Remember I grade on completeness (not correctness). This means it is in YOUR best interest to correct your own work and learn from your mistakes!!!
If you have unanswered questions—TODAY IS THE DAY TO ASK!
Use this homework to study for the test tomorrow!

3. 1a.
b. Group A demand is elastic = price decreased, TR will increase
Group B demand is inelastic = price decreased, TR will decrease
c. Discount should be offered to Group A – they will spend more money on books because of the discount than Group B will

4. 2a. Required textbooks are more inelastic; crime books are more elastic
b. Lemonade is more elastic – many subs for sugary drinks
c. Propane gas during next 6 years will be more elastic – people have more time to adjust (convert their homes to different type of energy, etc)
d. Maroon 5 albums are more elastic – many substitutes. If you like rock music in general and the price of all rock CDs increases, quantity demanded won’t likely drop off as much

5. 3a. Elasticity of business travelers = .23
Elasticity of vacationers = 1.32
b. Vacationers have a more elastic demand because they have more flexibility in travel dates, can wait for deals, don’t HAVE to travel, etc. Business travelers have very specific destinations, dates, times, etc.

6. 4.

7. 5a.
b. P1: $1,500; Q1: 22,000
P2: $1,250; Q2: 17,000

8. 6.
Positive CP elasticity = substitute goods. Negative = complements
Greater positive = most substitutable. Greater negative = most complementary. Phones and cases must go together “more” than peanut butter and jelly (or consumption of phones and cases are more linked)

9. 7. a.

11. 8.
Demand for cocaine is highly inelastic because people that use it are likely to be highly addicted (necessary good).
Supply is highly elastic because as a drug dealer, it’s easy to
sell if the price is high (for instance, stop selling meth and
switch to cocaine). Or, if cocaine sells for a high price, it’s
fairly easy to grow

12. Policy 1: Constrain supply through tougher policing. b.
Policy 1: Constrain supply through tougher policing.
Policy 2: Reduce demand through education.
Policy 1:
Increases price of cocaine
Increases revenue of dealers
(inelastic demand)
Reduces quantity consumed
a little
Policy 2:
Reduces price of cocaine
Decreases revenue of dealers (inelastic demand)
Greatly reduces quantity consumed

13. 1. a. Equilibrium price = $38,000; quantity = 400,000 cars
b. 300,000 cars purchased after tax. People pay $39,000, producers get $37,000
c. Government revenue=
$2000 x 300,000 =
$600m

14. 3a. It doesn’t matter if you impose the tax upon the consumers or producers – the resulting quantity sold, price consumers pay, and price producers receive ends up the same anyway

15. 3b. If demand was relatively elastic, the tax would be more successful in reducing consumption.
Graph on left – inelastic demand; right – elastic demand
All else kept constant (supply, amount of tax)
Elastic demand causes a greater decrease in consumption after tax

16. c. Both consumers and producers are hurt by this policy – consumers have to pay a higher price and sellers receive a lower price than before under equilibrium conditions