Economics of the environment
Assignment
1.Research on the admission fees to national parks has found that the price elasticity of demand for annual visits to Glacier National Park is 0.2. The National Park Service is now considering a 10-percent increase in the admission fee.
a)What will happen to the number of annual visits to Glacier National Park? Solve for a numerical answer.
Ep = % Δ Q/ % Δ P
0.2 = % Δ Q / 10%
% Δ Q = 2%
b)Will the revenues that the park collects increase or decrease? Briefly explain.
The total revenues at the park would increase after an increase in price if the demand was inelastic or decrease after an increase in price if the demand was elastic. As the demand can be considered inelastic (given that Ep <1), I would expect the park revenues to increase.
2.Which has a greater elasticity: a supply curve that goes through the origin with a slope of 1 or a supply curve that goes through the origin with a slope of 4? Please graph and explain. A supply curve that goes through the origin with a slope of 1 has unitary elasticity – meaning a percentage change in price will lead to a similar percentage change in the quantity supplied.
Eg. [(15-10)/(15+10)] / [(15-10)/(15+10)] = 1
For the supply curve with a slope of 4, the same is true if the curve goes through the origin.
Eg. [(2-1)/(2+1)] / [(8-4)/(8+4)] = [1/3] / [1/3] = 1
Or [(5-3)/(5+3)] / [(20-12)/(20+12)] = [1/4] / [1/4] = 1
Any linear supply curve that passes through the origin will have unitary elasticity (Es = 1), where a percentage change in the price will lead to an equivalent percentage change in the quantity.
3.When the price of tents rises by 15 percent, the demand for backpacks falls by 1 percent.
a)Calculate the cross price elasticity of demand.
Exp = [(Q2a – Q1a)/ (Q2a + Q1a)] / [(P2b – P1b)/ (P2b + P1b)]
= -1%/15%
= - 0.07
b)Are the goods complements or substitutes?
As Exp <0, these goods are complements.
c)By how much would demand for backpacks have to rise for the goods
1.Research on the admission fees to national parks has found that the price elasticity of demand for annual visits to Glacier National Park is 0.2. The National Park Service is now considering a 10-percent increase in the admission fee.
a)What will happen to the number of annual visits to Glacier National Park? Solve for a numerical answer.
Ep = % Δ Q/ % Δ P
0.2 = % Δ Q / 10%
% Δ Q = 2%
b)Will the revenues that the park collects increase or decrease? Briefly explain.
The total revenues at the park would increase after an increase in price if the demand was inelastic or decrease after an increase in price if the demand was elastic. As the demand can be considered inelastic (given that Ep <1), I would expect the park revenues to increase.
2.Which has a greater elasticity: a supply curve that goes through the origin with a slope of 1 or a supply curve that goes through the origin with a slope of 4? Please graph and explain. A supply curve that goes through the origin with a slope of 1 has unitary elasticity – meaning a percentage change in price will lead to a similar percentage change in the quantity supplied.
Eg. [(15-10)/(15+10)] / [(15-10)/(15+10)] = 1
For the supply curve with a slope of 4, the same is true if the curve goes through the origin.
Eg. [(2-1)/(2+1)] / [(8-4)/(8+4)] = [1/3] / [1/3] = 1
Or [(5-3)/(5+3)] / [(20-12)/(20+12)] = [1/4] / [1/4] = 1
Any linear supply curve that passes through the origin will have unitary elasticity (Es = 1), where a percentage change in the price will lead to an equivalent percentage change in the quantity.
3.When the price of tents rises by 15 percent, the demand for backpacks falls by 1 percent.
a)Calculate the cross price elasticity of demand.
Exp = [(Q2a – Q1a)/ (Q2a + Q1a)] / [(P2b – P1b)/ (P2b + P1b)]
= -1%/15%
= - 0.07
b)Are the goods complements or substitutes?
As Exp <0, these goods are complements.
c)By how much would demand for backpacks have to rise for the goods