Order Description
SHORT WRITTEN RESPONSES — MICROECONOMICS
ECO82210
–
ECONOMICS AND QUANTITATIVE ANALYSIS
(ONLINE)
SHORT WRITTEN RESPONSES
—
MICROECONOMICS
DUE DATE:
9am
Monday, 19 September 2016 (Week 3)
W
ORD LIMIT:
250 words (max.) for each question
WEIGHTING:
25
%
Instructions
Prepare short written
responses for the following five (5) questions.
Answers for each
question must not exceed 250 words.
Question 1 (5 marks)
What is the midpoint method for calculating price elasticity of demand? How else can the
price elasticity of demand be calculated? Wh
at is the advantage of the midpoint formula?
Question
2
(5 marks)
What are the key determinants of the price elasticity of demand for a product? What
determinant is the most important?
Question
3
(5 marks)
In 2003, when music downloading first took off,
Universal Music slashed the average price
of a CD from $21 to $15. The company expected the price cut to boost the quantity of CDs
sold by 30 per cent, other things remaining the same.
What was Universal Music’s estimate
of the price elasticity of demand f
or CDs?
If you were making the pricing decision at
Universal Music, what would be your pricing decision? Explain your decision.
Question
4
(5 marks)
In May 2009, iTunes raised the price of 33 songs from 99¢ per download to $1.29 per
download. In the week
following the price rise, the quantity of downloads of these 33 songs
fell 35 per cent.
Taking this into account c
alculate the price elasticity of demand for these 33
songs.
Question
5
(5 marks)
A 5 per cent fall in the price of chocolate sauce increases
the quantity of chocolate sauce
demanded by 10 per cent; and with no cha
nge in the price of ice cream,
the quantity of ice
cream demanded increases by 15 per cent.
Calculate the price elasticity of demand for
chocolate sauce.
Calculate the cross elasticity
of demand for ice cream with respect to the
price of chocolate sauce.
Are ice cream and chocolate sauce substitutes or complements?
Why?