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Take a typical demand curve and select two points on it. For

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Take a typical demand curve and select two points on it. For example, Point A has a price of $15 and a quantity demanded of 15. Point B has a price of $10 and a quantity demanded of 18. Calculate the percentage change in quantity. With two points on the demand curve, take the change in quantity and then divide it by the beginning quantity. Take ( Q2 - Q1 ) / Q1. In the example, Q2 = 18 and Q1 = 15. So the difference between them is 3. Dividing this by 15 gives you a 20 percent. In other words, quantity demanded increased by 20 percent. Calculate the percentage change in price. Take the difference between the two prices and divide it by the beginning price. The formula is ( P2 - P1 ) / P1. Referring back to the example, P2 = $10 and P1 = $15. So the difference between them is $5. Dividing this by 15 gives you a -33 percent. In other words, price decreased by 33 percent. Divide the percentage change in quantity by the percentage change in price. This gives you the price elasticity of demand. In the example, divide the 20 percent increase in quantity by the 33 percent decrease in price.That gives you a price elasticity of demand of -60 percent or -0.60. • The price of a laptop increases by 20% and there is a 40% drop in the quantity demanded. • The price of a pack of cigarettes increases by 10% and there is a 5% drop in the quantity demanded. • The price of water increases by 15% but there is no drop in the quantity demanded. • Compute the following price elasticities of supply: o The price of a hotel room increases by 20%, and the quantity supplied increases by 10%. o The price of health care goes up by 50% , and the quantity supplied increases by an equal amount. o The price of a book increases by 10%, and the quantity supplied increases 20%. o In the above examples, which is more elastic and which is the least elastic? Why? • What kind of supply and demand elasticities would the following goods have, and why? o Bridge tolls o Beachfront properties o Gourmet coffee o Luxury automobiles o Gasoline o Cell phones o Computers o College tuition

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