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ECON100 Tutorial Three Rob Pryce r.pryce@lancaster.ac.uk

3. ECON100 Tutorial Three Rob Pryce r.pryce@lancaster.ac.uk . Question 1. Determinants of PED. Mankiw and Taylor, p.95-96. Availability of close substitutes. Necessities or luxuries. Definition of the market. Proportion of income. Time horizon. Question 1. Importance of Determinant

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ECON100 Tutorial Three Rob Pryce r.pryce@lancaster.ac.uk

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  1. 3 ECON100Tutorial ThreeRob Prycer.pryce@lancaster.ac.uk

  2. Question 1 Determinants of PED Mankiw and Taylor, p.95-96 Availability of close substitutes Necessities or luxuries Definition of the market Proportion of income Time horizon

  3. Question 1 Importance of Determinant Depends on the good/service

  4. Question 2 %∆Qj %∆Pi Cross-Price Elasticity of Demand: In words, how much demand for j changes for a change in price of i.

  5. Question 2 Substitute: Increase in Pi leads to increase in Qj XPED > 0 Complement: Increase in Pi leads to decrease in Qj XPED < 0

  6. Question 3 Determinants of PES Mankiw and Taylor, p.105 Main determinant is TIME HORIZON Often short-run capacity constraints Eg. Sea-front housing

  7. Question 4 Examples of perfectly inelastic price elasticity of supply

  8. Question 5 Midpoint method: ∆Q ∆P QavPav Wikipedia: “Arc Method”

  9. Question 5a: Workings

  10. Question 5b Mankiw and Taylor, p.97

  11. Question 5c Total Revenue = Price x Quantity Price = £1, Quantity = 50,000 Total Revenue = £50,000 Price = £1.50, Quantity = 40,000 Total Revenue = £60,000

  12. Question 6

  13. Question 7 Income elasticity of demand using midpoint method Midpoint method: ∆Q ∆Inc QavIncav

  14. Question 7a (Answer = 2.2)

  15. Question 7b (Answer = 4.2)

  16. Question 8a

  17. Question 8b

  18. Question 8d St S0 T T

  19. http://www.theage.com.au/national/study-backs-minimum-pricing-for-alcohol-20121021-27zfh.htmlhttp://www.theage.com.au/national/study-backs-minimum-pricing-for-alcohol-20121021-27zfh.html

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