# 1. Assume that the elasticity of demand for chewing tobacco

1. Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an antic hewing campaign decreases the demand for chewing tobacco by 18 percent. The equilibrium price of chewing tobacco will_______(decrease/increase) by ________percent.

2. Suppose the elasticity of demand for motel rooms is 1.0 and the elasticity of supply is 0.50. If the demand for motel rooms increases by 15 percent, the equilibrium price of motel rooms will ________ (decrease/increase) by ________percent.

3. Suppose the price elasticity of demand for tomatoes is 0.70 and the supply elasticity is 3.30. If publicity about an outbreak of salmonella decreases demand by 12 percent, the equilibrium price will ________ (decrease/increase) by________ percent.

4. Suppose the price elasticity of demand for accordions is 2.0 and the supply elasticity is 3.0. If a subsidy on accordions increases supply by 20 percent, the equilibrium price will ________ (decrease/increase) by________ percent.

5. College Enrollment and Apartment Prices. Consider a college town where the initial price of rental apartments is \$400 and the initial quantity is 1,000 apartments. The price elasticity of demand for apartments is 1.0, and the price elasticity of supply of apartments is 0.50.

a. Use demand and supply curves to show the initial equilibrium, and label the equilibrium point a.

b. Suppose that an increase in college enrollment is expected to increase the demand for apartments in a college town by 15 percent. Use your graph to show the effects of the increase in demand on the apartment market. Label the new equilibrium point b.

c. Predict the effect of the increase in demand on the equilibrium price of apartments.

6. Regulations and the Price of Housing. Suppose local building regulations increase the cost of building new houses, decreasing supply by 12 percent. The initial price of new housing is \$200,000, the price elasticity of demand is 1.0, and the price elasticity of supply is 3.0. Predict the effect of the regulations on the equilibrium price of new housing. Illustrate your answer with a graph that shows the initial point (a) and the new equilibrium (b).

7. Import Restrictions and the Price of Steel. Suppose import restrictions on steel decrease the supply of steel by 24 percent. The initial price of steel is \$100 per unit, the elasticity of demand is 0.70, and the elasticity of supply is 2.3. Predict the effect of the import restrictions on the equilibrium price of steel. Illustrate your answer with a graph that shows the initial point (a) and the new equilibrium (b).

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