=-1 4P=Q=200-4P P=25 Q=100. 8.Judy has decided to allocate exactly $500 to textbooks at college every year. even though she kno are likely toinerease by 5 to 10 per year and that he地epi器.ubtatia moetaryie grandparents next year.What is Judy's price elasticity of demand for textbooks?Income elasticity? Price elasticity of demand is percentage change in quantity for a given percentage change in price.Judy knows that prices will go up in the future Given she is go nd a fixed amount on books,this st mean that her quantity demanded will decrease as price increases. Since expenditure is constant the percentage change in quantity demanded must be equal to the percentage change in price,and price elasticity is-1.Income elasticity must be zero because although she expects a large monetary gift.she has no plans to city is defined as the a之onn all else 9.The ACME Corporation determines that at current prices the demand for its computer chips has a price elasticity of-2 in the short run,while the price elasticity for its disk drives is -1. If the corporation decides to raise the price ofboth products by 10 percent. what will happen to its sales?To its sales revenue? We know the formula for the elasticity ofdemand is For computer chips.E2.a 10 percent inerease in price will reduce the quantity sold by 20 perent.For disk drives,Ep =-1,so a 10 peroent increase in price will reduce sales by 10 percent. Sales revenue is equal to price times quantity sold.Let TR=P be revenve before the price change and TR2=P2Q be revenue after the price change. For computerchips △TRe=PQ-PQ4 ATR=(1.1P1X(O.8Q)-PQ=0.12P:Q1.or a 12percent decline For disk drives: △TRaa=PQ-PQ ATR=(1.1PX0.9Q1)-PQ=-0.01P Q.or a 1percent decline s = −4P Q = −1 4P = Q = 200 − 4P P = 25 Q = 100. 8. Judy has decided to allocate exactly $500 to textbooks at college every year, even though she knows that the prices are likely to increase by 5 to 10 percent per year and that she will be getting a substantial monetary gift from her grandparents next year. What is Judy’s price elasticity of demand for textbooks? Income elasticity? Price elasticity of demand is percentage change in quantity for a given percentage change in price. Judy knows that prices will go up in the future. Given she is going to spend a fixed amount on books, this must mean that her quantity demanded will decrease as price increases. Since expenditure is constant the percentage change in quantity demanded must be equal to the percentage change in price, and price elasticity is -1. Income elasticity must be zero because although she expects a large monetary gift, she has no plans to purchase more books. Recall that income elasticity is defined as the percentage change in quantity demanded for a given percentage change in income, all else the same. 9. The ACME Corporation determines that at current prices the demand for its computer chips has a price elasticity of -2 in the short run, while the price elasticity for its disk drives is -1. a. If the corporation decides to raise the price of both products by 10 percent, what will happen to its sales? To its sales revenue? We know the formula for the elasticity of demand is: E Q P P = % %   . For computer chips, EP = -2, so a 10 percent increase in price will reduce the quantity sold by 20 percent. For disk drives, EP = -1, so a 10 percent increase in price will reduce sales by 10 percent. Sales revenue is equal to price times quantity sold. Let TR1 = P1Q1 be revenue before the price change and TR2 = P2Q2 be revenue after the price change. For computer chips: TRcc = P2Q2 - P1Q1 TRcc = (1.1P1 )(0.8Q1 ) - P1Q1 = -0.12P1Q1 , or a 12 percent decline. For disk drives: TRdd = P2Q2 - P1Q1 TRdd = (1.1P1 )(0.9Q1 ) - P1Q1 = -0.01P1Q1 , or a 1 percent decline