# Microeconomics

posted by .

Paint increase from \$3.00 a gallon to \$3.50 a gallon. The paint drops from 35 gallons a month to 20 gallons a month. Compute the price elasticity of demand for paint and show the calculations

• Microeconomics -

you are a painter, and the price of a gallon of paint increases from \$3.00 a gallon to \$3.50 a gallon. your usage of paint drops from 35 gallons a month to 20 gallons a month. perform the following. compute the price elasticity of demand for paint and show your calculations. decide whether the demand for paint is elastic, unitary elastic, or inelastic. explain your reasoning and interpret your results.

• Microeconomics -

1. At \$3 per gallon, you consumption is 35 gallons for expenditure of \$105 per month. At \$3.50 per gallon, your consumption drops to 20 gallons for expenditure of \$75 per month. In that price range, the demand is relatively elastic. Calculation of Price Elasticity of Demand:

Q2 - Q1
-----------------------
( Q1 + Q2 ) / 2
-------------------------------
P2 - P1
-----------------------
( P1 + P2 ) / 2

20 gal - 35 gal / (35 + 20)/2 = -15 / 27.5 = -.5455
\$3.50 - \$3 / (\$3 + \$3.50)/2 = \$.50 / \$3.25 = .1538

-.5455 / .1538 = 3.5468 = 3.55

2. 3.55 > 1; demand is elastic

Edit: When demand is elastic, increasing the price decreases total revenue. When demand is inelastic, increasing the price increases total revenue. When demand is unitary elastic, changes in price don't effect total revenue.

Example of unitary elastic: Concert tickets can be priced \$50, \$75, \$100, or \$125. Research demonstrates that at \$50, 3000 tickets will be sold. At \$75, 2000 tickets will be sold. At \$100, 1500 tickets will be sold. At \$125, 1200 tickets will be sold.

Total revenue at each price/ticket sales level:
\$50 x 3000 = \$150,000
\$75 x 2000 = \$150,000
\$100 x 1500 = \$150,000
\$125 x 1200 = \$150,000

## Similar Questions

1. ### math

a local hardware store has a 10-gallon can of gray paint left over that is a mixture of 35% black paint and 65% white paint. how many gallons of white paint will be needed to make the gray mixture 20% black?
2. ### PRE-ALGEBRA

Paint costs \$21 per gallon is to be mixed with 6 gallons of paint thinner costing \$5 per gallon to make a paint that can be \$15 per gallon. Compute how much paint mixture will be produced.
3. ### Geometry

A man needs to repaint the two triangular gables on his house. Each gable is long and high. How many gallons of paint will he need if a gallon of paint covers 100 sq. ft.?
4. ### miccoeconomics

you are a painter, and the price of a gallon of paint increases from \$3.00 a gallon to \$3.50 a gallon. your usage of paint drops from 35 gallons a month to 20 gallons a month. perform the following. compute the price elasticity of …
5. ### home economics

compute the price elasticity of demand for paint and show calculations?
6. ### economics

You are a painter, and the price of a gallon of paint increases from \$3.00 a gallon from 3.50 a gallon. your usage of paint drops from 35 gallons a month to 20 gallons a month. perform the following: 1. compute the price elasticity …
7. ### Microeconomics

Suppose you are a painter, and the price of a gallon of paint increases from \$3.00 a gallon to \$3.50 a gallon Your usage of paint drops from 35 gallon a month to 20 gallons a month. Perform the following Compute the price elasticity …
8. ### decimals

Mark wants to paint a mural. He has 1 1/3 gallons of yellow paint, 1 1/4 green paint, and 7/8 gallon of blue paint. mark plans to use 3/4 gallon of each paint color. How many gallons of paint will he have left after painting the mural?
9. ### physics

A gallon of paint will cover 300 ft2. How many gallons will you need to paint a 12-ft x 18-ft wall with two coats of this paint?
10. ### Algebra

A painter needs to purchase enough paint to paint a bedroom that consists of four walls. Two of the walls are 11 feet by 10 feet and the other two walls are 12 feet by 10 feet. The paint is sold in 1 gallon cans, and each gallon of …

More Similar Questions