2. Price elasticity of demand:

a. When the price of a bar of chocolate is $1.00, the quantity demanded is

100,000 bars. When the price rises to $1.50, the quantity demanded falls to

60,000 bars. Calculate the price elasticity of demand using the mid-point

method. Based on your calculation, is this curve relatively more elastic or

inelastic?

b. Draw a graph of the changes above, mark the price effect and quantity effect

on your graph. How big is the price effect? How big is the quantity effect?

c. Which effect is dominating? How is this related to the price elasticity of

demand?

d. If the price elasticity of demand for used cars priced between $3,000 and

$5,000 is -1.2 (using the mid-point method), what will be the percent change

in quantity demanded when the price of a used car falls from $5,000 to

$3,000?