Question

The price elasticity of demand for Best Paints one gallon sized paint cans is 0.79. If Best Paints increased the price of their gallon sized paint cans by 10​ percent, which of the following is expected to​ occur?

A. Quantity demanded falls 0.79% B. Quantity demanded increases 7.9% C. Quantity demanded increases 0.79% D. Quantity demanded falls 7.9%

You are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 10 percent, you should expect which of the following?

a 2.6 percent increase in the demand for your flowers

a 26 percent decrease in the demand for your flowers

a 2.6 percent decrease in the demand for your flowers

a 26 percent increase in the demand for your flowers

You are the manager of a local flower shop and you compete with one other flower shop in your area. You estimate the cross-price elasticity of demand between your flowers and your competitor's flowers to be 2.60. If your competitor decreases the price of her flowers by 2 percent, you should expect which of the following?

a 0.77 percent decrease in the demand for your flowers

a 5.2 percent decrease in the demand for your flowers

a 0.77 percent increase in the demand for your flowers

a 5.2 percent increase in the demand for your flowers

Answer 1

Answer 1. D. Quantity demanded falls 7.9%

Reason- Percentage change in quantity demanded= Price elasticity of demand* Percentage change in price level= 0.79*10%= 7.9%

Answer 2.

26 percent decrease in the demand for your flowers

reason- Cross price elasticity= % change in quantity demanded of good x/ % change in price of good y

Percentage change in quantity demanded of good x= 10*2.6%=26%

Since the goods are substitute goods, There will be decrease in quantity demanded

Answer 3. a 5.2 percent decrease in the demand for your flowers

reason- Cross price elasticity= % change in quantity demanded of good x/ % change in price of good y

Percentage change in quantity demanded of good x= 2*2.6%=5.2%

Since the goods are substitute goods, There will be decrease in quantity demanded.