Economics 60

Assignment#2
Deadline: August 25, 2017

A. Suppose that a small market Major League Baseball team currently charges $12 for a ticket. At this price,
they are able to sell 12,000 tickets to each game. If they raise ticket prices to $15, they would sell 11,053
tickets to each game. What is the price elasticity of demand at $12?
B. You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your
movies. Your friend who took an economics course in college tells you that there may be a way to increase
your total revenue. Given the demand curves shown, answer the following questions.
Price
10

2 Adult Demand
1

10 20 30 40 50 60 70 80 90 100 Quantity

Price
10

2 Child Demand
1

5 10 15 20 25 30 35 40 45 50 55 60 65 70 Quantity

1. What is your current total revenue for both groups?

2. The elasticity of demand is more elastic in which market?
3. Which market has the more inelastic demand?
4. What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is
this elastic or inelastic?
5. What is the elasticity of demand between $5 and $2 in the children's market? Is this
elastic or inelastic?
6. Given the graphs and what your friend knows about economics, he recommends you
increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.
How much could you increase total revenue if you take his advice?
C. The income elasticities of demand for movies, dental services, and clothing have been estimated to be +3.4,
+1, and +.5, respectively. Interpret these coefficients. What does it mean if an income elasticity coefficient
is negative?
D. Suppose the cross-elasticity of demand for products A and B is +3.6, and for products C and D is -5.4. What
can you conclude about how products A and B are related? Products C and D?