Unit 5 Assignment: Elasticity of Demand and Consumer Surplus

Unit 5 AB224 | Microeconomics
Unit 5 Assignment: Elasticity of Demand and
Consumer Surplus
Name:
Course Number and Section: AB224–0X
Date:
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Assignment
In this Assignment, you will calculate the Price Elasticity of Demand, demonstrate a firm
understanding of consumer choices based on differing marginal utilities, consumer
surplus, and how the buying choice and amount of consumer surplus changes based on
various pricing schemes.
In this Assignment, you will be assessed on the following outcome:
AB224-5: Demonstrate how the concept of utility affects purchasing decisions by
individuals and consumer surplus.
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Unit 5 AB224 | Microeconomics
Questions
1. The accompanying table shows the price and monthly demand for barrels of gosum
berries in Gondwanaland.
Price of
gosum
berries
per
barrel
Native
Demand
for
gosum
berries
per
month
$100 0
$90 100
$80 200
$70 300
$60 400
$50 500
$40 600
$30 700
$20 800
$10 900
$0 1000
a. Using the midpoint method (show your work), calculate the price elasticity of
demand when the price of barrel of gosum berries rises from $10 to $20. What
does this estimate imply about the price elasticity of demand of gosum berries?
As price increases from $10 to $20, the demand for gosum berries decreases from
900 to 800
Price elastity of demand= Percentage change∈quantity demand
Percentage change∈ price
¿ ΔQ
Δ P × Paverage
Qaverage
v.6.16.17 Page 2 of 10

Unit 5 AB224 | Microeconomics
¿ Q2−Q1
P2−P1
×
P1+ P2
2
Q1+Q2
2
800−900
20−10 ×
10+20
2
900+800
2
¿ 100
−10 × 10
850
¿−10 ×0.0176
¿−0.176 −0.18
b. Using the midpoint method (show your work), calculate the price elasticity of
demand when the price of barrel of gosum berries rises from $70 to $80. What
does this estimate imply about the price elasticity of demand of gosum berries?
As price increases from $70 to $80, the demand for gosum berries decreases from
300 to 200
Price elastity of demand= Percentage change∈quantity demand
Percentage change∈ price
¿ ΔQ
Δ P × Paverage
Qaverage
¿ Q2−Q1
P2−P1
×
P1+ P2
2
Q1+Q2
2
200−300
80−70 ×
70+ 80
2
300+ 200
2
¿ 100
−10 × 75
250
¿−10 ×0.3000
¿−3
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